Manually Signed
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ___________
Commission file number _______
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
McDonald's Corporation Profit Sharing Program
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
McDonald's Corporation
McDonald's Plaza
Oak Brook, Illinois 60523
FINANCIAL STATEMENTS AND EXHIBIT
(a) Financial Statements
McDonald's Corporation Profit Sharing Program Financial Statements
Report of Independent Auditors 1
Statements of Net Assets Available for Benefits, with Fund Information
at December 31, 2001 and 2000 2
Statements of Changes in Net Assets Available for Benefits,
with Fund Information For The Years Ended December 31, 2001 and 2000 3
Notes to Financial Statements 4
(b) Exhibit
Exhibit 23 - Consent of Independent Auditors
Financial Statements
McDonald's Corporation Profit Sharing Program
Years ended December 31, 2001 and 2000
with Report of Independent Auditors
Employer Identification #36-2361282
Plan #001
McDonald's Corporation Profit Sharing Program
Financial Statements
Years ended December 31, 2001 and 2000
Contents
Report of Independent Auditors ....................................... 1
Financial Statements
Statements of Net Assets Available for Benefits ...................... 2
Statements of Changes in Net Assets Available for Benefits ........... 3
Notes to Financial Statements ........................................ 4
Report of Independent Auditors
To Administrative Committee
McDonald's Corporation Profit Sharing Program
We have audited the accompanying statements of net assets available for benefits
of McDonald's Corporation Profit Sharing Program as of December 31, 2001 and
2000, and the related statements of changes in net assets available for benefits
for the years then ended. These financial statements are the responsibility of
the Program's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of McDonald's
Corporation Profit Sharing Program at December 31, 2001 and 2000, and the
changes in its net assets available for benefits for the years then ended, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
May 10, 2002
McDonald's Corporation Profit Sharing Program
Statements of Net Assets Available for Benefits
(In Thousands)
December 31, 2001
---------------------------------------------------------
McDESOP and
Leveraged ESOP
Profit --------------------------
Sharing Allocated Unallocated
Plan Funds Funds Total
---------------------------------------------------------
Assets
Investments, at fair value:
Commercial paper and other short-term investments $ 62,066 $ 2,723 $ 3,724 $ 68,513
Corporate bonds 1,000 -- -- 1,000
Government bonds 1,028 -- -- 1,028
Mutual funds 72,767 -- -- 72,767
Common and preferred stocks other than McDonald's Corporation 172,781 -- -- 172,781
McDonald's Corporation common stock:
44,459,118 shares in 2001; 49,298,732 shares in 2000 198,574 741,557 236,666 1,176,797
Common trust funds 47,732 -- -- 47,732
Investments, at contract value:
Investment contracts 330,541 -- -- 330,541
---------------------------------------------------------
Total investments 886,489 744,280 240,390 1,871,159
Receivables:
Company contributions 27,350 258 -- 27,608
Accrued income 544 7 7 558
Other 1,192 (496) -- 696
---------------------------------------------------------
Total receivables 29,086 (231) 7 28,862
---------------------------------------------------------
Total assets 915,575 744,049 240,397 1,900,021
Liabilities
Management and administrative expenses payable 1,275 753 -- 2,028
Accrued interest expense -- -- 3,021 3,021
Notes payable:
Current -- -- 7,403 7,403
Long-term -- -- 108,462 108,462
Other liabilities 524 1,563 -- 2,087
---------------------------------------------------------
Total liabilities 1,799 2,316 118,886 123,001
---------------------------------------------------------
Net assets available for benefits
Allocated net assets 913,776 741,733 -- 1,655,509
Unallocated net assets -- -- 121,511 121,511
---------------------------------------------------------
Net assets available for benefits $ 913,776 $ 741,733 $ 121,511 $ 1,777,020
=========================================================
December 31, 2000
---------------------------------------------------------
McDESOP and
Profit Leveraged ESOP
------------------------
Sharing Allocated Unallocated
Plan Account Account Total
---------------------------------------------------------
Investments, at fair value:
Commercial paper and other short-term investments $ 53,946 $ 8,199 $ 4,185 $ 66,330
Corporate bonds 500 -- -- 500
Government bonds -- -- -- --
Mutual funds 92,303 -- -- 92,303
Common and preferred stocks other than McDonald's Corporation 238,367 -- -- 238,367
McDonald's Corporation common stock:
44,459,118 shares in 2001; 49,298,732 shares in 2000 309,278 1,034,877 331,966 1,676,121
Common trust funds 51,148 -- -- 51,148
Investments, at contract value:
Investment contracts 265,699 -- -- 265,699
---------------------------------------------------------
Total investments 1,011,241 1,043,076 336,151 2,390,468
Receivables:
Company contributions 10,408 (117) -- 10,291
Accrued income 421 41 21 483
Other 833 201 -- 1,034
---------------------------------------------------------
Total receivables 11,662 125 21 11,808
---------------------------------------------------------
Total assets 1,022,903 1,043,201 336,172 2,402,276
Liabilities
Management and administrative expenses payable 975 471 -- 1,446
Accrued interest expense -- -- 3,283 3,283
Notes payable:
Current -- -- 8,003 8,003
Long-term -- -- 115,865 115,865
Other liabilities 542 2,528 -- 3,070
---------------------------------------------------------
Total liabilities 1,517 2,999 127,151 131,667
---------------------------------------------------------
Net assets available for benefits
Allocated net assets 1,021,386 1,040,202 -- 2,061,588
Unallocated net assets -- -- 209,021 209,021
---------------------------------------------------------
Net assets available for benefits $ 1,021,386 $ 1,040,202 $ 209,021 $ 2,270,609
=========================================================
The accompanying notes are an integral part of these financial statements.
2
McDonald's Corporation Profit Sharing Program
Statements of Changes in Net Assets Available for Benefits
(In Thousands)
December 31, 2001 December 31, 2000
---------------------------------------------- ---------------------------------------------
McDESOP and McDESOP and
Profit Leveraged ESOP Profit Leveraged ESOP
----------------------- ----------------------
Sharing Allocated Unallocated Sharing Allocated Unallocated
Plan Funds Funds Total Plan Funds Funds Total
---------------------------------------------- ---------------------------------------------
Net investment income (loss)
Dividend income $ 5,024 $ 6,301 $ 2,073 $ 13,398 $ 6,637 $ 6,418 $ 2,289 $ 15,344
Interest income 30,271 243 40 30,554 22,088 499 22 22,609
Net realized and unrealized
depreciation in fair value of
investments (111,830) (223,088) (72,432) (407,350) (94,977) (207,691) (70,539) (373,207)
Interest expense -- -- (8,435) (8,435) -- -- (9,362) (9,362)
Management and administrative fees (2,961) (907) -- (3,868) (3,117) (685) -- (3,802)
---------------------------------------------- ---------------------------------------------
Total net investment loss (79,496) (217,451) (78,754) (375,701) (69,369) (201,459) (77,590) (348,418)
Contributions
Company 27,335 -- 11,565 38,900 10,408 20 24,590 35,018
Participants 1,805 47,091 -- 48,896 4,921 41,374 -- 46,295
---------------------------------------------- ---------------------------------------------
Total contributions 29,140 47,091 11,565 87,796 15,329 41,394 24,590 81,313
Allocations
Half a Buck Matching with Profit
Sharing Forfeitures (79) 79 -- -- (82) 82 -- --
Half a Buck Matching with Leveraged
ESOP Shares -- 18,488 -- 18,488 -- 16,419 -- 16,419
Leveraged ESOP year-end allocations:
Common Stock:
1989 $200 million Leveraged ESOP -- 900 (13,225) (12,325) -- 15,899 (26,845) (10,946)
1991 $100 million Leveraged ESOP -- 933 (7,096) (6,163) -- 8,515 (13,988) (5,473)
---------------------------------------------- ---------------------------------------------
Total allocations (79) 20,400 (20,321) -- (82) 40,915 (40,833) --
Other changes
Benefits paid to terminated
participants (107,411) (98,929) -- (206,340) 94,437) (96,008) -- (190,445)
Interfund transfers (net) 49,833 (49,833) -- -- 57,688 (57,688) -- --
Other 403 253 -- 656 137 68 -- 205
---------------------------------------------- ---------------------------------------------
Total other changes (57,175) (148,509) -- (205,684) (36,612) (153,628) -- (190,240)
---------------------------------------------- ---------------------------------------------
Net decrease in net assets available
for benefits (107,610) (298,469) (87,510) (493,589) (90,734) (272,778) (93,833) (457,345)
Net assets available for benefits at
beginning of year 1,021,386 1,040,202 209,021 2,270,609 1,112,120 1,312,980 302,854 2,727,954
---------------------------------------------- ---------------------------------------------
Net assets available for benefits at
end of year $ 913,776 $ 741,733 $121,511 $1,777,020 $1,021,386 $1,040,202 $209,021 $2,270,609
============================================== =============================================
The accompanying notes are an integral part of these financial statements.
3
EIN 36-2361282
Plan #001
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements
Years ended December 31, 2001 and 2000
1. Description of the Program
Effective January 1, 2002, the McDonald's Corporation Profit Sharing Program
("the Program") was amended and restated in its entirety and renamed the
McDonald's Corporation Profit Sharing and Savings Plan ("the Plan"). The notes
below describe the Program prior to the amendment and restatement. The Program
was formed January 1, 1989, when the McDonald's Corporation Savings and Profit
Sharing Plan ("Profit Sharing Plan") was merged with the McDonald's Matching and
Deferred Stock Ownership Plan ("McDESOP"). The Profit Sharing Plan is a
noncontributory, defined-contribution plan. The Profit Sharing Plan includes
the Investment Savings account, which permitted participants to contribute
after-tax dollars to the Profit Sharing Plan prior to 1987 and is no longer
contributory. McDESOP consists of two components. The first component is a
salary deferral plan with Company matching allocations, and the second component
is an employee stock ownership plan ("Leveraged ESOP"). Effective December 29,
1995, the McDonald's Corporation Stock Sharing Plan ("Stock Sharing Plan") was
merged with the Program ("Merged Plan"). The assets of the Stock Sharing Plan
were transferred into McDESOP. The Plan documents with respect to the respective
portions of the Merged Plan remained in effect until the Program, as amended and
restated effective January 1, 1997, became effective. The Program was since
amended and restated effective November 1, 1998. In addition, the Program has
three amendments effective June 1, 2000, January 1, 2001, and March 1, 2001,
respectively. The Program is administered by a committee of employees
("Administrative Committee") of McDonald's Corporation ("the Company" or "Plan
Sponsor") as selected by the Board of Directors ("Board") of the Company. The
following description of the Program provides only general information and does
not reflect the restatement of the Program effective January 1, 2002.
Participants should refer to the Program Summary Plan Description and Prospectus
for a more complete description, and up to date information.
Eligibility
Under provisions of the Program, effective January 1, 2001, an employee becomes
eligible for participation on the first day of the month following age 21 or
older and after one year of "eligibility service" as defined by the Program's
documents. Full-time McDonald's salaried restaurant managers, staff, executives,
and part-time staff employees scheduled to work at least 20 hours per week, who
are at least 21 years old,
4
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
1. Description of the Program (continued)
may make non-matched 401(k) contributions beginning the first of the month after
completion of one month of service. Prior to January 1, 2001, employees could
only enter the Program on either January 1 or July 1, following completion of
eligibility requirements. Non-matched 401(k) contributions prior to the
completion of one year of service were not allowed in 2000.
Investments and Elections
All Profit Sharing investments, other than those in the Blended Stock/Bond Fund,
are held by The Northern Trust Company ("the Custodian") under a custodial
agreement dated September 27, 1989. Blended Stock/Bond Fund investments are held
and managed by Wellington Trust Company, National Association. T. Rowe Price
Associates, Inc. manages the Money Market Fund. PRIMCO Capital Management
manages the Stable Value Fund. Jennison Associates, Institutional Captial
Corporation, Blackrock Financial Management Inc., and Chartwell Investment
Partners are investment managers for the Diversified Stock Fund. The S&P Index
Fund is a mutual fund managed by Vanguard Group, and the International Stock
fund is comprised of two mutual funds, managed by Morgan Stanley Asset
Management and Dresdner RCM Global Investors. Subject to the objectives and
restrictions of the individual investment funds, the fund managers have
discretionary authority for the purchase and sale of investments other than
McDonald's Corporation common stock. The Northern Trust Company is the
administrator for the Profit Sharing Plan's McDonald's Common Stock Fund.
The Trustees (employees of the Company appointed by the Board of Directors) are
authorized to invest all of the assets of McDESOP and Leveraged ESOP in shares
of Company stock. The allocated assets are held by The Northern Trust Company.
The unallocated Leveraged ESOP shares are also held at The Northern Trust
Company as custodian for McDonald's Corporation and Wachovia Bank. Proceeds from
the Leveraged ESOP common stock dividends are invested in an interest-bearing
account until the note payment is due.
Participants may elect, as often as 12 times per year, to have their Profit
Sharing account balances invested in 5% increments in one or any combination of
the Plan's investment funds.
5
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
1. Description of the Program (continued)
McDESOP and Leveraged ESOP Investments
Participant elected contributions to McDESOP are invested by The Northern Trust
Company on behalf of the Trustees in shares of common stock of the Company
unless the participant chooses alternative investment funds. Participants may
elect, as often as 12 times per year, to have their own 401(k) contribution
account balances invested in 5% increments in one or any combination of the
Plan's investment funds. Shares of common stock for McDESOP are purchased in the
open market through a national securities exchange. Proceeds from the Leveraged
ESOP loans have been used to purchase common stock of the Company.
Any dividends or other distributions paid on the shares in the Leveraged ESOP
component of the Program (see Note 7 regarding Leveraged ESOP stock dividends)
are used to repay the Leveraged ESOP loans, and common stock equal to the value
of the dividends on allocated shares are transferred from unallocated shares and
allocated to participants' accounts.
Allocation of Contributions and Earnings
Company contributions to the Profit Sharing Plan are determined by the Board.
The Board may elect to make this discretionary contribution in the form of cash
or McDonald's common stock or any combination of the two. In addition, the Board
may define eligibility requirements to receive this contribution based on
employee age, hours of service, and pay class. The Profit Sharing Plan
contribution is allocated to eligible McDonald's participants who are 21 years
old, have received credit for at least 1,000 hours of service during the year,
and are employed at the end of the year. In addition, participants who terminate
before the last day of the year due to the sale of a McDonald's restaurant,
death, disability, retirement on or after age 55, or who have 10 years of
credited service in the Program prior to termination, share in the allocation of
the Profit Sharing contribution in the year their employment terminates. The
allocation to participants is based on their relative considered compensation
compared to all eligible participants, as defined. As soon as administratively
possible after year-end, the Profit Sharing contribution is reinvested in
accordance with participants' investment elections in effect at that time.
Participant elected salary reductions for McDESOP are credited directly to
participants' accounts. Company matching allocations are credited based on 50%
of each participant's salary reductions up to the matched level. The matched
level varies depending on pay class and employer.
6
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
1. Description of the Program (continued)
Program net investment income or loss is allocated to participants semimonthly
based on their respective account balances at the beginning of the semimonthly
period. Participants' Profit Sharing accounts are credited with the income,
gains, and losses of the investment fund(s) in which their accounts are
invested.
Leveraged Employee Stock Ownership Plan (Leveraged ESOP)
In September 1989, the Leveraged ESOP borrowed $200 million and used the
proceeds of the loan to purchase 27,826,084 shares of McDonald's Series B
Convertible Preferred Stock at an issue price of $7.188 per share. These
preferred shares were held exclusively by the Leveraged ESOP and were not traded
on the open market. The Company paid a cash dividend on the stock of 7% of the
issue price, or $0.12579 per share each quarter. In September 1992, the Company
redeemed 16,000,000 shares of unallocated Series B Preferred shares held by the
Leveraged ESOP. In August 1995, the Company redeemed the remaining 6,230,058
unallocated Series B preferred shares, and in December 1995, the remaining
4,176,122 allocated Series B preferred shares were redeemed. Prior to each
redemption, the Program's Trustees converted each share of Preferred Stock into
..7692 shares of McDonald's Common Stock, or 12,307,200, 4,792,159, and 3,212,271
shares, respectively. The unallocated shares will be released for allocation to
participants as Company contributions are made to the Program. Effective
November 1, 1998, released shares are first used to make matching McDESOP
allocations and any remaining shares released are allocated annually to eligible
participants' accounts based on their respective considered compensation. Due to
the Leveraged ESOP refinancing discussed in Note 7, the last allocation will
occur in 2018 when the refinanced loan is completely repaid.
In April 1991, the Leveraged ESOP borrowed $100 million and used the proceeds of
the loan to purchase 12,075,468 shares of McDonald's Series C Convertible
Preferred Stock at an issue price of $8.281 per share. These preferred shares
were held exclusively by the Leveraged ESOP, and were not traded on the open
market. The Company paid a cash dividend on the stock of 7% of the issue price
or $0.1449 per share each quarter. In August 1995, the Company redeemed the
remaining 8,928,110 unallocated Series C preferred shares, and in December 1995,
the remaining 2,710,514 allocated Series C preferred shares were redeemed. Prior
to each redemption, the Program's Trustees converted each share of Preferred
Stock into .8 shares of McDonald's common stock or 7,142,486 and 2,168,409
shares, respectively. The unallocated shares will be released for allocation to
participants as Company contributions are made to the Program. Effective
November 1, 1998, released shares are first used to make matching McDESOP
7
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
1. Description of the Program (continued)
allocations and any remaining shares released are allocated to eligible
participants' accounts based on their relative considered compensation. Due to
the 1999 Leveraged ESOP refinancing discussed in Note 7, the last allocation
will occur in 2018 when the refinanced loan is completely repaid.
Vesting
McDESOP accounts are fully vested and nonforfeitable regardless of the
participant's length of employment with the Company. Participants' Profit
Sharing and Leveraged ESOP accounts vest 20% for each year of credited service
until they reach a 100% vested status after completing five years of credited
service. If termination of employment is by reason of death, permanent
disability, or retirement on or after attaining age 55, or if the Program is
terminated, the participant's interest in these accounts is 100% vested.
Diversification
Effective September 1, 2000, participants at least age 50 are eligible to
diversify all of their existing Leveraged ESOP balances and any future
contributions into the Profit Sharing Plan investment funds. All participants in
McDESOP may elect to diversify all or a portion of both existing and future
participant contributions and related earnings into the Profit Sharing Plan
investment funds in increments of 5%. Participants age 50 or older can diversify
all or a portion of the employer-matching allocation in their existing McDESOP
accounts and future contributions. Company matching contributions are not
eligible to be diversified by those who are not yet age 50, and will remain
invested in McDonald's common stock.
Termination and Forfeitures
Participants who terminate their employment with the Company are entitled to
receive the vested interest in their Program accounts within a reasonable time
following the close of the year in which the termination has occurred. The
nonvested balance is forfeited at the end of the year in which the participant
has five consecutive breaks-in-service, or upon distribution of the vested
balance, whichever is earlier. If the participant resumes employment with the
Company before incurring five consecutive breaks-in-service and requalifies to
enter the Program, the forfeited nonvested balance is reinstated. If a
participant does not terminate but has less than 500 hours of credited service
during a calendar year, a break-in-service occurs.
8
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
1. Description of the Program (continued)
Profit Sharing forfeitures are first used to fund participants' McDESOP account
adjustments and then are used to fund the McDESOP Company match.
Leveraged ESOP forfeitures are allocated at the end of the calendar year to
participants in the same manner as the allocation of the Company Leveraged ESOP
contributions.
Forfeitures also include amounts forfeited as a result of unclaimed payouts
greater than two years old for the Profit Sharing Plan, Leveraged ESOP, and
McDESOP.
A terminated participant with vested benefits in excess of $5,000 will not
receive a distribution from the Program until age 70 1/2 unless an earlier
distribution is elected. Such accounts will continue to share in the allocation
of investment income, and Profit Sharing Plan accounts will continue to be
invested in accordance with the participant's investment elections.
Rollovers
The Program allows employees who were in a tax-qualified plan elsewhere to roll
over all or part of their previous plan money into the Program where it can be
invested in one or a combination of the Profit Sharing Plan investment funds. To
qualify, the employee must contribute all or part of the amount received,
excluding the employee's after-tax contributions, to the Program within 60 days
after receiving a payout from the other plan.
In-Service Withdrawals
Effective January 1, 2001, participants who have been in the Program for at
least 60 months are eligible to withdraw up to 75% of their Leveraged ESOP and
Profit Sharing Accounts while still employed with the Company or Brand employers
(Boston Market, Chipotle, and Donatos). Participants may only make one
withdrawal in a calendar year. Withdrawals are not allowed from McDESOP plan
until termination from the Company or the participant reaches age 70 1/2.
Voting
Participants are entitled to direct the Trustees in voting shares of McDonald's
stock credited to their accounts. In addition, participants who are employees
may direct the vote on unallocated and unvoted shares based on the relative
allocated shares credited to their accounts.
9
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
1. Description of the Program (continued)
Program Termination
Although it has not expressed any intent to do so, the Company has the right
under the Program to discontinue its contributions at any time and to terminate
the Program subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA). In the event of Program termination, participants will
become fully vested in their accounts.
Investment Valuation
The Program holds a beneficial interest in the McDonald's Savings and Profit
Sharing Master Trust ("Master Trust"). Earnings, market adjustments, fees, and
expenses relating to investment transactions of the Master Trust are allocated
to the participating plans (the Program and MHDC Partners Savings and Profit
Sharing Plan) based on each plan's share of the Trust assets. The MHDC Partners
Savings and Profit Sharing Plan was terminated effective November 30, 2001, and
all assets of that plan were distributed to plan participants prior to December
31, 2001.
Investments (except for those in investment contracts) are stated at fair market
value. Investments in common and preferred stocks and corporate bonds are valued
at the closing exchange prices reported by the New York Stock Exchange. The
market values for commercial paper and other short-term investments are cost
plus accrued interest, which approximates current market value. The values of
the common trust funds are based on quoted redemption values. Such redemption
values primarily reflect quoted market prices for the underlying securities. The
shares of mutual funds are valued at quoted market prices, which represent the
net asset values of shares held by the Program at year end. The investment
contracts are stated at contract value, which represents cost plus accrued
interest less withdrawals.
Purchases and sales of securities are accounted for on the trade date. Realized
gains or losses on the sale of securities are based on the average cost of the
securities. Dividend income is recorded on the ex-dividend date. Interest income
is recorded as earned on the accrual basis.
10
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Administrative Committee to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Company Contributions
Company contributions to the Profit Sharing, Leveraged ESOP, and McDESOP Plans
are recorded as expense to the Company on an accrual basis. Profit Sharing Plan
and Leveraged ESOP contributions are recorded in participants' accounts when
received annually. The McDESOP Company matching allocations are recorded in
participants' accounts semimonthly, and participant elected salary reductions
are recorded in participants' accounts at the end of the applicable payroll
period. Participants' rollover contributions are recorded when received.
Unallocated Net Assets Available for Benefits
Unallocated net assets available for benefits represents the market value of
shares of McDonald's common stock purchased through the Leveraged ESOP which has
not been released for allocation to participants' accounts, offset by the
balance of the debt issued by the Leveraged ESOP. Unallocated net assets
available for benefits is reduced by the market value of the shares as they are
allocated to participants.
Reclassifications
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentation.
11
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
3. Financial Statements and Form 5500
No differences exist between the financial statements and Form 5500 at December
31, 2001.
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500 as of December 31, 2000 (in thousands):
December 31
2000
--------------
Net assets available for benefits per the
financial statements $ 2,270,609
Amounts allocated to withdrawn participants (30,297)
--------------
Net assets available for benefits per the Form 5500 $ 2,240,312
==============
Amounts allocated to withdrawing participants by investment are as follows (in
thousands):
December 31
2000
------------
Holding Accounts $ 205
Money Market Fund 687
Stable Value Fund 2,863
Blended Stock/Bond Fund 534
Diversified Stock Fund 4,753
S&P 500 Index Fund 1,183
International Stock Fund 585
McDonald's Common Stock 19,487
------------
$ 30,297
============
Amounts allocated to withdrawn participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment at year-end but
not yet paid.
12
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
4. Investments
During 2001 and 2000, the Plan's investments (including investments bought,
sold, and held during the year) appreciated (depreciated) as follows (in
thousands):
December 31
2001 2000
------------------------------------------------------------
Net Realized Net Realized
And Unrealized and Unrealized
Appreciation Appreciation
(Depreciation) (Depreciation)
in Value in Value
During the During the
Value Year Value Year
------------------------------------------------------------
Investments, at fair value:
Commercial paper and other
short-term investments $ 68,513 $ (190) $ 66,330 103
Corporate bonds 1,000 - 500 (1)
Government bonds 1,028 (5) - -
Mutual funds 72,767 (14,777) 92,303 (8,632)
Common and preferred stocks 172,781 (29,203) 238,367 (19,453)
McDonald's Corporation common
stock 1,176,797* (360,411) 1,676,121* (343,115)
Common Trust funds 47,732 (2,764) 51,148 (2,109)
Investments, at contract value: -
Pacific Life Insurance Company 1,345 - 2,038 -
Caisse Des Depots 7,045 - 7,067 -
Caisse Des Depots 38,946 - 34,771 -
Allstate Life Insurance Company 58,057 - 20,845 -
Pacific Life Insurance Company 15,511 - 23,381 -
Principal Life Insurance Company 36,739 - 34,514 -
Pacific Life - MBIA Insured 29,873 - 28,002 -
Principal Life Insurance Company - - 34,133 -
Pacific Life Insurance Company 86,633 - 80,948 -
Bank of America NT & SA 56,392 - - -
---------------------------------------------------------
$ 1,871,159 $(407,350) $2,390,468 (373,207)
=========================================================
*Individual investment which represents 5% or more of net assets available for
benefits.
13
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
4. Investments (continued)
The following is a summary of each investment contract held at December 31,
2001:
2001 2000
2001 2000 Crediting Crediting Fair Fair
Average Average Interest Interest Book Market Value of
Yield Yield Rate* Rate Value Value Wrapper
-----------------------------------------------------------------------------------------------
Allstate Life Insurance Company 6.20% 5.79% 5.70% 5.83% $ 58,056,618 $ 59,585,115 $ (1,528,497)
Bank of America NT & SA 9.58 - 8.84 - 56,392,159 59,638,456 (3,246,297)
Caisse Des Depots 4.66 6.18 3.81 5.68 7,045,324 7,138,766 -
Caisse Des Depots 6.10 7.27 5.83 8.36 38,945,851 39,730,756 -
Pacific Life Insurance Company 5.61 7.65 3.49 7.92 1,344,876 1,367,754 -
Pacific Life Insurance Company 5.62 7.19 4.66 6.83 15,511,201 16,447,575 -
Pacific Life Insurance Company 7.02 6.36 7.02 6.38 86,632,772 88,678,242 (2,045,470)
Pacific Life - MBIA Insured 6.68 6.66 6.49 6.49 29,873,061 31,257,541 -
Principal Life Insurance Company 6.45 6.94 6.06 6.94 36,739,287 39,712,048 -
-------------------------------
$ 330,541,149 $ 343,556,253
===============================
*The crediting interest rate is determined at the end of each calendar year.
14
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
5. Nonparticipant-Directed Investments
The McDESOP and Leveraged ESOP consist of both participant-directed and
nonparticipant-directed investments. Information about the assets and the
significant components of the changes in assets is disclosed in the "Allocated
Fund" columns on pages 2 and 3 of the basic financial statements.
6. Master Trust Summarized Information
The following represents the summarized information of the net assets of the
McDonald's Savings and Profit Sharing Master Trust as of December 31 (in
thousands):
2001 2000
------------------------------
Total investments $ 1,871,159 $ 2,391,249
Total receivables 28,862 11,820
Total liabilities (123,001) (131,668)
------------------------------
Net assets $ 1,777,020 $ 2,271,401
==============================
Program's share of net assets $ 1,777,020 $ 2,270,609
==============================
Dividend income $ 13,398 $ 15,347
Interest income 30,558 22,611
Net realized and unrealized depreciation
in fair value of investments (407,473) (373,348)
Total expenses (12,303) (13,166)
------------------------------
Total net investment loss $ (375,820) $ (348,556)
==============================
Program's share of net investment loss $ (375,701) $ (348,418)
==============================
15
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
7. Notes Payable
In September 1989, the Leveraged ESOP issued $200 million of 7.67% Guaranteed
ESOP Notes, Series A, for 15 years with a final maturity of September 15, 2004.
In April 1991, the Leveraged ESOP issued $100 million of 7.30% Guaranteed ESOP
Notes, Series B, for 15 years with a final maturity of June 1, 2006. In November
1999, the Leveraged ESOP paid down $84,740,000 of these notes and refinanced
both the Series A and Series B notes. At that time, the Leveraged ESOP issued a
$104,672,800, 7.11% ESOP Note, for 19 years with a final maturity of July 15,
2018, and a $28,305,658, 7.11% ESOP Note, for 3 years with a final maturity of
July 15, 2002. Principal and interest payments are made according to the
applicable loan schedules. Dividends on the converted common stock and Company
contributions are used to repay the loans.
In December 1994, the Leveraged ESOP issued a total of $17,460,000 of 6.52%,
6.59%, and 6.57% Guaranteed ESOP Notes, Series C, with final maturities of
September 15, 2004, June 1, 2006, and December 1, 2005, respectively. In
November 1999, $8,684,656 of these notes were paid down, leaving a total of
$8,775,344 remaining. In December 1995, the Leveraged ESOP issued a total of
$18,970,000 of 6.74%, 6.75%, 6.72%, and 6.68% Guaranteed ESOP Notes, Series C,
with final maturities of December 1, 2004 and 2005, September 15, 2004, and
December 15, 2003, respectively. In November 1999, $11,771,030 of these notes
were paid down, leaving a total of $7,198,970 remaining. In December 1996, the
Leveraged ESOP issued a total of $20,220,000 of 6.82%, 6.75%, and 6.77%
Guaranteed ESOP Notes, Series C, with final maturities of December 1, 2004,
December 15, 2002, and December 15, 2003, respectively. In November 1999,
$14,181,859 of these notes were paid down, leaving a total of $6,038,141
remaining. In December 1997, the Leveraged ESOP issued a total of $18,350,000 of
6.89%, 6.86%, and 6.81% Guaranteed ESOP Notes, Series C, with final maturities
of December 1, 2004, December 1, 2003, and December 15, 2002, respectively. In
November 1999, $13,600,913 of these notes were paid down, leaving a total of
$4,749,087 remaining. All proceeds were used for prepayment of the Series A and
B Guaranteed ESOP Notes. The terms of the Series C Notes require semiannual
interest payments with lump-sum principal payments at maturity date.
The Series A, Series B, and Series C Notes are collateralized by unallocated
shares of McDonald's common stock, valued at $130,816,000, $64,758,000, and
$41,092,000, respectively, at December 31, 2001. All Notes are guaranteed by
McDonald's Corporation. Holders of the Notes have no recourse against the assets
of the Leveraged ESOP, except for such collateralized shares, cash contributions
to the Leveraged ESOP,
16
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
7. Notes Payable (continued)
and earnings attributable to such collateralized shares or contributions, which
were valued at approximately $240,390,000 at December 31, 2001. The unallocated
shares of McDonald's common stock may be released from collateral under certain
circumstances without the consent of the holders of the Notes.
Following are maturities of the Notes for each of the next five years (in
thousands):
Series A Series B Series C
Notes Notes Notes Total
-----------------------------------------
2002 $ 2,142 $ 1,079 $ 4,182 $ 7,403
2003 -- -- 7,181 7,181
2004 -- -- 7,895 7,895
2005 1,164 586 5,203 6,953
2006 3,314 1,669 2,300 7,283
Beyond 2006 52,634 26,516 -- 79,150
Total over remaining -----------------------------------------
life of Notes $ 59,254 $ 29,850 $ 26,761 $ 115,865
-----------------------------------------
8. Administrative Fees
The custodian and investment managers' fees applicable to each investment fund
are netted against the related investment income before investment income is
allocated to participants' accounts. Certain administrative expenses directly
associated with the Program are paid by the Program and charged to participants'
accounts, including salary expenses for certain McDonald's employees. The
Company provides other administrative services to the Program without charge.
9. Income Tax Status
The Program has received a favorable determination letter dated May 14, 2002,
from the Internal Revenue Service ("the IRS") stating that the Program is
qualified under Section 401(a) of the Internal Revenue Code ("IRC") and that the
Leveraged ESOP component of the Program constitutes an employee stock ownership
plan that meets the requirements of Section 4975 of the IRC. The Trusts
established in connection with the Program appear to be exempt from federal
income taxes.
17
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
10. Transactions With Parties In Interest
During 2001 and 2000, the Program received $10,107,000 and $10,688,000,
respectively, in common stock dividends from the Company. In connection with the
Leveraged ESOP refinancing discussed in Note 7, $132,978,458 of debt, at an
interest rate of 7.11%, was issued directly by the Company to the Program in
1999. This loan is intended to be an exempt loan under Section 408(b)(3) of
ERISA and Section 4975(d)(3) of the IRC. Fees paid during the year for
accounting and other services rendered by parties in interest were based on
customary and reasonable rates for such services.
11. Subsequent Events
On November 9, 2001, the Program was amended and restated in its entirety and
renamed the McDonald's Corporation Profit Sharing and Savings Plan ("the Plan"),
effective January 1, 2002. In addition, the McDonald's Matching and Deferred
Stock Ownership Trust was merged with the McDonald's Corporation Profit Sharing
Master Trust to create the McDonald's Corporation Profit Sharing and Savings
Trust ("the Trust"), effective December 31, 2001.
The following changes were made to the Program effective January 1, 2002, unless
stated otherwise:
The features of the Plan were renamed 401(k) (which includes the participant
contributions as well as the employer match), Profit Sharing (which includes
Investment Savings), ESOP, Stock Sharing, and Rollover.
Effective February 8, 2002, the Plan outsourced its recordkeeping function to
Northern Trust Retirement Consulting following a transition period.
Eligibility
In addition to the existing eligibility requirements, individuals must have a
valid social security number and be on the U.S. payroll of their employer to
participate in the Plan. Also, Brand employees (Boston Market, Chipotle, and
Donatos) who are full-time salaried restaurant managers, staff, and executives
and part-time staff scheduled to work at least 20 hours per week, are eligible
to make salary deferrals to the Plan after completing one full calendar month of
employment. After meeting the eligibility requirements, participants can
contribute up to 15% of pay.
18
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
11. Subsequent Events (continued)
Investments and Elections
On February 5, 2002, the Master Custody Agreement dated September 29, 1989,
between the Trustees of the Program and The Northern Trust Company was amended.
The money market fund was eliminated. Effective April 16, 2002, BlackRock
Financial Management, Inc. was replaced by Turner Investment Partners, Inc. as
one of the investment managers for the Diversified Stock Fund. Effective March
1, 2002, Dresdner RCM Global Investors was replaced by Artisan Partners L.P.
Effective February 8, 2002, participants can elect, on a daily basis, to have
their account balances invested in 1% increments in one or any combination of
the Plan's investment funds. Participants can also elect to invest their
employer match, as well as their own 401(k) contributions, in Company stock or
any alternative investment funds. Participants can make separate investment
elections for their existing account balance and for new contributions.
Participants can also make separate investment elections for each feature of the
Plan.
Allocation of Contributions and Earnings
Participants who terminate before the last day of the year due to death,
permanent disability or retirement on or after age 55 share in the allocation of
the Profit Sharing contributions and ESOP allocations in the year their
employment terminates. Other events (such as termination of employment with 10
years of credited service) no longer qualify to share in the allocation of the
Profit Sharing contributions and ESOP allocations.
Employer matching allocations are credited based on the safe harbor match (100%
match on the first 3% of pay contributed and 50% on the next 2% of pay
contributed) for all eligible participants, regardless of pay class or employer.
The match is credited to participant accounts after each pay period.
Participant net investment income or loss for all accounts are allocated to
participants each day of the week that the stock market is open.
Brand employees can participate in the Profit Sharing and ESOP features if the
Company allows the Brands to adopt these features. As of January 1, 2002, no
Brand employer has adopted the Profit Sharing or ESOP features.
19
McDonald's Corporation Profit Sharing Program
Notes to Financial Statements (continued)
11. Subsequent Events (continued)
Diversification
All participants, regardless of age, may diversify their entire 401(k) balance
(which includes employer-matching allocations) at any time. Employer-matching
contributions are no longer required to remain invested in McDonald's Stock
until age 50.
Termination and Forfeitures
Participants who terminate employment after satisfying the requirements to make
401(k) contributions and subsequently rehire can resume making 401(k)
contributions as soon as administratively feasible. Individuals who are
re-employed before incurring five consecutive one-year Breaks-In-Service and
were not fully vested in their Profit Sharing or ESOP account, will have the
amount previously forfeited restored upon rehire. Individuals rehired after five
consecutive one-year Breaks-In-Service, will not have any forfeitures on their
Profit Sharing or ESOP account reinstated. An individual's years of vesting
service earned before re-employment are added to their years of vesting service
earned after re-employment.
Rollovers
In addition to rollovers from previous employer tax-qualified plans, employees
can roll over their money into the Plan from tax deferred annuities, qualified
employee annuities, deferred compensation arrangements maintained by a
governmental employer as described in IRC Section 457(e)(16), and rollover
individual retirement accounts established with the proceeds of a distribution
from one of the plans described above, provided that additional contributions
had not been made.
Other
Participants age 59 1/2 or older may withdraw all of their account balances
under the Plan at any time.
Individuals that are employed as a salaried restaurant manager or staff with a
licensee-owned restaurant that is purchased by McDonald's or Brand employers and
are at least age 21 may enter the 401(k) feature of the Plan as soon as
administratively feasible and be eligible for the employer match. If McDonald's
purchased the restaurant, the individuals described above will automatically
enter the Profit Sharing and ESOP features of the Plan and receive two years of
credited service toward vesting unless considered a "highly paid" employee.
"Highly paid" employees will receive the lesser of two years credited service or
actual years of employment.
20
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
McDONALD'S CORPORATION
PROFIT SHARING PROGRAM
By: ADMINISTRATIVE COMMITTEE
Date: June 27, 2002 By: /s/ Eugene J. Stachowiak
------------------------
Vice President, Trustee, and
Member of the Administrative
Committee