McDonalds 2010 Annual Report Download - page 42

Share-based Compensation
The Company maintains a share-based compensation plan which authorizes the granting of various equity-based incentives including
stock options and restricted stock units (RSUs) to employees and nonemployee directors. The number of shares of common stock
reserved for issuance under the plans was 70.9 million at December 31, 2010, including 31.2 million available for future grants.
STOCK OPTIONS
Stock options to purchase common stock are granted with an exercise price equal to the closing market price of the Company’s stock on
the date of grant. Substantially all of the options become exercisable in four equal installments, beginning a year from the date of the
grant, and generally expire 10 years from the grant date. Options granted between May 1, 1999 and December 31, 2000 (approximately
5.8 million options outstanding at December 31, 2010) expire 13 years from the date of grant.
Intrinsic value for stock options is defined as the difference between the current market value of the Company’s stock and the
exercise price. During 2010, 2009 and 2008, the total intrinsic value of stock options exercised was $500.8 million, $302.5 million and
$549.5 million, respectively. Cash received from stock options exercised during 2010 was $463.1 million and the actual tax benefit real-
ized for tax deductions from stock options exercised totaled $139.0 million. The Company uses treasury shares purchased under the
Company’s share repurchase program to satisfy share-based exercises.
A summary of the status of the Company’s stock option grants as of December 31, 2010, 2009 and 2008, and changes during the
years then ended, is presented in the following table:
2010 2009 2008
Options Shares in millions
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual
life in years
Aggregate
intrinsic
value in
millions Shares in millions
Weighted-
average
exercise
price Shares in millions
Weighted-
average
exercise
price
Outstanding at beginning of year 47.8 $38.16 53.4 $34.88 67.5 $31.85
Granted 4.5 63.26 5.6 56.94 5.3 56.55
Exercised (13.6) 33.84 (10.7) 31.17 (18.7) 29.97
Forfeited/expired (1.3) 46.03 (0.5) 47.22 (0.7) 37.53
Outstanding at end of year 37.4 $42.47 5.1 $1,281.8 47.8 $38.16 53.4 $34.88
Exercisable at end of year 26.4 $35.88 3.8 $1,077.3 35.4 40.8
RSUs
RSUs generally vest 100% on the third anniversary of the grant and are payable in either shares of McDonald’s common stock or cash,
at the Company’s discretion. Certain executives have been awarded RSUs that vest based on Company performance. The fair value of
each RSU granted is equal to the market price of the Company’s stock at date of grant less the present value of expected dividends over
the vesting period.
A summary of the Company’s RSU activity during the years ended December 31, 2010, 2009 and 2008 is presented in the following
table:
2010 2009 2008
RSUs Shares in millions
Weighted-
average
grant date
fair value Shares in millions
Weighted-
average
grant date
fair value Shares in millions
Weighted-
average
grant date
fair value
Nonvested at beginning of year 2.8 $46.33 3.0 $40.88 3.4 $35.94
Granted 0.7 56.09 0.9 50.34 0.8 51.10
Vested (1.1) 42.08 (1.0) 34.56 (1.1) 30.38
Forfeited (0.1) 49.61 (0.1) 43.87 (0.1) 40.41
Nonvested at end of year 2.3 $51.17 2.8 $46.33 3.0 $40.88
The Company realized tax deductions of $7.1 million from RSUs vested during 2010. The total fair value of RSUs vested during
2010, 2009 and 2008 was $66.8 million, $59.9 million and $56.4 million, respectively.
40 McDonald’s Corporation Annual Report 2010