AGM 2020

May 21, 2020

The information in this presentation contains certain forward looking statements that reflect management's expectations regarding future events and operating performance and speaks only as of May 21, 2020. These forward looking statements are not guarantees of performance and involve a number of risks and uncertainties. Except as required by law, we do not undertake to update these statements. A list of the factors that could cause actual results to differ materially from those expressed in these statements is included in our SEC filings, such as our annual and quarterly reports. You can access these reports on McDonald's website. Our website also includes reconciliations of any non GAAP financial measures mentioned in our presentation to their corresponding GAAP measures. At the request of McDonald's Corporation, this meeting will be recorded and may be available for replay for those who are not able to attend and for later reference by attendees. If you do not consent to this recording, please disconnect immediately. Good morning. My name is Rick Hernandez. I'm honored to serve as Chairman of your Board of Directors and to welcome you all to McDonald's Corporation's first ever virtual annual shareholders meeting. Though we find ourselves in very unusual circumstances, unable to meet in person and doing our best to keep ourselves and our families safe and healthy, we thank you for joining today. I now call this meeting to order. On your screen, you can see the agenda for our meeting today, Thursday, May 21. Information about meeting procedures and rules of conduct can be found in the meeting materials box on your screen. Also on the line and attending the meeting are the McDonald's Board of Directors, our Chairman Emeritus, Andy McKenna our President and Chief Executive Officer, Chris Kimchinsky, who will offer remarks later in the meeting and General Counsel and Corporate Secretary, Jerry Krulowich. I'll first provide a few comments before we turn to the presentation of the proxy proposals and hear from Chris. The outbreak of COVID-nineteen has caused immense business disruption around the world. We are now operating in a completely different environment with tremendous challenges to overcome. Our shareholders can be confident that McDonald's has the leadership, resources and strategic vision to overcome the challenges ahead. We believe we are well positioned to continue to succeed as one of the world's greatest brands. 2019 was a year of record setting financial and operational performance. Last year, the company and its franchisees hit several performance milestones. We reached $100,000,000,000 in system wide sales. Global comparable sales increased 5.9%, the highest in more than 10 years. And franchisee cash flows achieved record or near record levels in most of our largest markets. Our strong performance in 2019 enabled us to enter 2020 in the coronavirus situation in an exceptionally strong financial position. While the business has taken a hit caused by the pandemic, the company is well positioned to manage through the crisis. In addition to our strong financial position, we also believe we have the right team in place to drive the business forward, both on the Board and senior leadership teams. Toward the end of 2019, Chris Kimchinsky, one of the architects of the proven Velocity Growth Plan assumed the role of the CEO. The Board is confident Chris has the character, experience and skills to boldly lead McDonald's and all of that rings especially true in these trying times. I want to thank Chris for his exceptional leadership, steadfast decision making during this crisis. Our Board of Directors also demonstrates steadfast decision making and our Board's combined experience and track record have all come to bear meaningfully this year To ensure we have the right mix of skills, experience and fresh perspectives, we're committed to continuing to periodically refresh our Board. As part of that commitment, we elected 2 new independent directors in 2019, Paul Walsh and Kathy Engelbert. Both Paul and Kathy have been strong additions to the Board and their relevant experience and expertise have been critical in helping manage through the added context of coronavirus. McDonald's next chapter will be defined by our agility, values and ability to manage the challenges created by coronavirus with the Board's oversight and support. The 2,200,000 people across the McDonald's system have shown an unwavering commitment to being ambassadors for our values and continuing to deliver for the business. That commitment is what enabled us to enter this crisis in a better position than most and it is also what will allow us to emerge with strength. While the road ahead may be difficult, we are confident that McDonald is well positioned for long term success. At this time, I will turn to Jerry Krulowich, our Corporate Secretary to describe our procedures for the business of the meeting. Thank you, Rick. I can advise that a quorum of the company's shares outstanding is present to conduct the meeting. In the event this webcast and we are unable to reestablish a connection within 30 minutes, this meeting will be adjourned and a new date and time will be announced. The polls are open and shareholders who logged in using their control number are able to cast or change their votes online. The polls will close following the presentation of the proposals. You will find the meeting agenda and rules of conduct in the meeting materials box on your screen. Here is the order of events. The Chairman will introduce each proxy proposal as well as the presenters of the shareholder proposals. The presenter of each proposal will be connected by phone to present the proposal in 2 minutes or less. We respectfully request that each shareholder proponent keep his or her remarks related to the proposal that's being presented. Preliminary voting results will be announced following and posted on our corporate website within 4 business days. And posted on our corporate website within 4 business days. Following the meeting and the CEO's remarks, there will be a question and answer session. If you are a shareholder, you may submit a question via the Q and A box on your screen. Questions that are substantially similar may be combined that we may answer questions on a variety of topics. Due to time constraints, we may not be able to answer all questions. Please include your contact information in your submission so that we may respond to any questions we're unable to answer during the meeting. If you have already submitted your proxy, you do not need to vote by online ballot. If you have not already voted your shares, please vote using the online ballot on your screen. Broadridge Financial Solutions, the independent Inspector of Election is joining by phone. Broadridge will receive and tally all votes. A representative from our independent auditor, Ernst and Young LLP is also on the line. I will now turn the meeting back to our Chairman for the presentation of the proposals. Rick? Thank you, Jerry. Our first order of business is the election of the following directors: Lloyd Dean, Robert Eckert, Kathryn Engelbert, Margaret Georgiadis, Myselfra Hernandez, Chris Kucinski, Richard Lenny, John Mulligan, Sheila Penrose, John Rogers Jr, Paul Walsh and Myles White. The second item is an advisory vote to approve executive compensation. The 3rd item is an advisory vote to approve the appointment of Ernst and Young LLP as independent auditor for 2020. The 4th item is a vote to approve our amended and restated 2012 omnibus stock ownership plan. The 5th item is an advisory vote on a shareholder proposal requesting to change the thresholds to call special shareholder meetings. The 6th item is an advisory vote on a shareholder proposal requesting to change on sugar and Before I call the speakers to present their proposals, I want to reiterate that in accordance with the stated rules of the meeting, we request that the proponents limit their remarks to the presentation of the proposal and keep their presentations to the 2 minute limit. At this time, I call on John Chevedden, who will present proposal number 5 in 2 minutes or less. Mr. Shvett? Hello. This is John Chevedden. Can you hear me okay? We certainly can. Proposal 5, special shareholder meeting improvement. Shareholders ask our board to take the steps necessary to amend our bylaws and governing documents to give the whole the owners of a total of 15% of our outstanding common stock the power to call a special shareholder meeting. This proposal includes a request that the 1 year holding period be removed for shares to participate in calling for a special meeting. Special meetings allow shareholders to vote important matters such as electing new directors that can arise between annual meetings. This proposal topic won more than 70% support at Edwards Lifesciences. Since shareholder meetings allow shareholders to vote on important matters such as selecting new directors, adoption of this proposal might accelerate the refreshment of our Board of Directors. For instance, Smiles White was rejected by 37 times as many shares as each of 3 other McDonald's directors at the 2019 annual meeting. And Paul Walsh was rejected by 18 times as many shares as each of 3 other McDonald's directors. Under the present McDonald's right for shareholders to call a special shareholder meeting, it could take an overwhelming 75% of McDonald's shares to actually call a special shareholder meeting. If 75% of shares took requesting a special meeting, then 1 third of these shares could be disqualified because they were held for less than 1 continuous year. Then another third could be disqualified because they fell short, I mean, just one of the tedious requirements in the McDonald's bylaws. Only then would 25% of shares remain standing to request a special shareholder meeting after 75% of shares began the tedious process. This proposal topic won 47% support at the 2017 McDonald's Annual Meeting. This 47% support represented majority support from the McDonald's shares that had access to independent proxy voting advice. Plus the 2017 addition of this proposal did not point out the serious limitation of the 1 year holding period requirement. After a 45% vote for a shareholder proposal, which is less than the 47% vote at McDonald's, the Bank of New York Mellon Corporation said it adopted the shareholder proposal topic in 2019. Please vote yes, Special Shareholder Meeting Improvement Proposal 5. Thank you, Mr. Chevedden. I appreciate your remarks. The 6th item is an advisory vote on a shareholder proposal requesting that the Board issue a report on Sugar and Public Health. At this time, I'd like to welcome Terrence Wise, who has been designated by shareholder John Harrington to present proposal number 6 in 2 minutes or less. Mr. Wise? Good morning, CEO of contingency and shareholders. My name is Terrence Wise, and I'm proud to be here representing Parenting Investment and introducing proxy item number 6, a report on sugar and public health. We know that McDonald's use of sugar and junk food, heavily marketed at children, present a major risk to public health and shareholder value. But there's another public health risk taking place right now. In your restaurant, right this minute, workers are getting sick from COVID-nineteen. Sonia Hernandez, who has worked for McDonald's for 20 years, was clinging to life on a ventilator. Mr. Wise, I think you need to restrict your remarks to the postpaid drugs which has to do with sugar. For workers' safety and well-being with the same authority that allows it to take profit from every burger sold worldwide. Mr. Wise, I'm You can figure out what's going on with your remarks, but you can't shareholders. Ma'am, would you please mute the phone. Mr. Wise, all the shareholders are eager to hear what you have to say about proposal number 6. However, you must, in accordance with the rules of our meeting, restrict your remarks to the subject at hand. You seem to be talking about things other than sugar and health. So if you would like to continue your remarks, please do. But if you stray from the proposal at hand, I'm going to mute your phone and we'll continue the muting, accepting your proposal as made at that time. Please, Mr. Wise, continue. And be a part of the solution instead of the problem. We deserve 15 in a union and benefit like Okay, please mute Mr. Wise's phone. Thank you and please. Okay. For all shareholders, we're accepting the 6th proposal from Mr. Wise as stated. It's on the record available to be voted. Thank you, Mr. Weisz. The Board of Directors recommends a vote in favor of the election of all director nominees and in favor of the 3 management proposals. The Board recommends a vote against the 2 shareholder proposals. The reasons for the Board's recommendations are outlined in the proxy statement. If you are voting at the meeting, please complete the online ballot. Again, if you've already submitted your proxy, you do not need to vote by online ballot. The polls are now closed. The preliminary results are as follows. Shareholders have elected each of the Director nominees. Shareholders have approved the management proposal relating to an advisory vote on executive compensation. Shareholders have approved Ernst and Young as the company's independent auditor for 2020. Shareholders have approved the amended and restated 2012 Omnibus Stock Ownership Plan. The advisory vote on a shareholder proposal requesting to change the thresholds to call special shareholder meetings has not been approved. The advisory vote on shareholder proposal requesting the Board issue a report on Sugar and Public Health has not been approved. Again, the final voting results of today's meeting will be reported on a Form 8 ks filed within 4 business days of this meeting. This concludes the formal business of the meeting and the Annual Shareholder Meeting is adjourned. It is now my privilege to introduce McDonald's President and CEO, Chris Kymchinski, who will provide remarks after this short video. There is nothing more important to us than the communities we serve. Being there for our neighbors, showing how much we care, from restaurant to restaurant and community to community that no matter where you are in the world, We are 1 McFamily. It's the hardworking crew. It's the leadership of our franchisees and our dedicated suppliers. We've built a strong foundation for what lies ahead, And we're there for each other, for crew and employees, for customers, for all those who've worked so tirelessly, and for the nearly 40,000 communities around the world. We'll continue to serve you together. What a great reminder of the amazing ways that our Global Good family has come together in recent months. To start off, thank you, Rick, and thank you to the Board of Directors for your ongoing partnership. It's a pleasure to be with all of you for my first shareholders meeting as CEO. Though we can't be together in person, I want to express my sincere appreciation for everyone listening in and participating. To all our shareholders joining online, we're grateful for your investment and your continued belief in McDonald's. As Rick said earlier, the coronavirus has upended life in many ways, and the McDonald's system is no exception. We're all feeling the effects, sometimes in ways that are deeply personal. We've felt anxiety and great sadness, especially as we've lost members our global Mick family to COVID-nineteen. Our thoughts are with their family and friends and we will honor their memories. But amid these losses, I've been greatly moved and heartened by the actions of our teams worldwide. From Filipino Kindness Kitchens to free birthday cake delivery for kids in Croatia, to thank you meals for first responders here in the US, the system has come together in extraordinary and innovative ways. I'm so grateful to our crew who are safely continuing to serve affordable, convenient food to their neighbors and essential workers, and to our franchisees and suppliers who are taking inspiring actions to provide care and continuity of services to those in need. The 3 legged stool established by our founders has served us well and gives me complete confidence in our ability to emerge from the global crisis. You heard from Rick about our 2019 performance and the key milestones that allowed us to enter 2020 in a strong position. Since then, it's become clear that we're operating in a very fluid situation. We're not yet able to estimate the full impact of the crisis, but we have focused on things we can control to confront the challenge and protect your investment. Early in this crisis, I laid out 5 key principles to guide our approach and inform our actions. 1st, we're all in this together. Because the health and safety of our people and our communities is central to our values, we took swift steps to protect crew and customers. We implemented contactless drive through and delivery, social distancing guidelines, protective equipment for crew and enhanced hygiene and cleaning procedures. Protecting the well-being of our people and our customers is our number one priority and guides every decision we make. 2nd, think and act with a long term mindset. We must be flexible to best position the business for long term success. Though customers are seeking known brands and are excited to get back to McDonald's, we know they won't immediately revert to pre COVID routines, and their expectations will be different. Because of these changing behaviors and the uncertainty of the crisis, we expect that our performance will remain challenged. That's why we're taking important and decisive near term actions to maximize our financial flexibility, including suspending our share repurchase program and increasing our cash position. We're reducing capital expenditures this year by slowing some Experience of the Future projects across the U. S. And reducing the number of new restaurant openings in most global markets. We're also thinking about our broader strategy in the aftermath of COVID-nineteen. While many elements of the Velocity Growth Plan will continue to be important, we will need to evolve to reflect this new reality. We're drawing on our intimate local knowledge of customer needs to shape our long term strategies and make adjustments in real time. We will work to provide updates as decisions are made. 3rd, be transparent with each other and our stakeholders. Being open and honest with our system and customers is key in these uncertain times. That's why we've been in regular contact with updates, lessons learned and information to support our people. We've also stayed in close touch with all of you, our shareholders, about our plans to navigate the uncertain road ahead. 4th, lead by example. Despite the disruption caused by coronavirus, McDonald's has been able to adapt. Our global system has learned from the experience of markets as they manage through the various phases of pandemic. We've seen some great instances of market innovation to adapt to these new realities. We will continue to make appropriate adjustments to ensure we live and lead by example. And last, our final principle, stay true to our purpose. As this crisis unfolds, we remain committed to do what we can to help feed and foster community. We're partnering across our global supply chain in restaurants to ensure food gets to people who need it and want it, whether through our restaurants, delivery, partnerships or charitable donations. It's by playing a positive role in our nearly 40,000 communities that we will all come out of this crisis stronger. While responding to today's very real challenge is our priority, we continue to make progress in other areas that matter to our communities, our system, society and our business. Looking back on 2019, we continue to work toward our global goal of reducing barriers to employment for youth and continuing our focus on gender balance and diversity to further support people throughout our system. As a proud burger company, we've worked alongside farmers, suppliers, NGOs and scientists for many years to identify and scale practices that support thriving food system, protect the planet and support farmer livelihoods. We've also set ambitious goals around packaging and recycling to help advance a circular economy and address concerns about plastics. By 2025, we will strive to have 100 percent of guest packaging coming from renewable, recycled or certified sources. And to advance McDonald's role in combating climate change, I'm proud that in 2019 we announced our first ever large scale renewable energy commitments in the U. S. While 2020 will continue to present challenges and difficult decisions, I'm confident that we are taking the necessary actions to ensure we're prepared for the new business landscape. McDonald's has seen a lot over our 65 years and I believe in the bright future of the golden arches. The strength of our brand and resilience of our people provide a solid foundation for our long term success. With the passion of 2,200,000 McFamily members across the system and the guidance of our experienced Board and proven senior leadership team, I am confident McDonald's will manage through these uncertain times and emerge with strength. Thank you all for your continued support. And I'll now turn to the question and answer portion of the meeting. Our first question, how is McDonald's managing our business and taking care of our people during the coronavirus pandemic? Coronavirus pandemic is a global public health crisis and it's human tragedy. I think it's safe to say it's affected all of us, both professionally and even more so personally. And so certainly appreciate and understand the concern that our crew, our people, as well as our customers have about how McDonald's is managing this balance of taking care of people and our business. Fortunately, we have 65 years of experience working through these types of situations. Most recently, we've dealt with the outbreaks associated with MERS, SARS and swine flu. And so when the coronavirus pandemic really became sort of full force, the first thing that we did is we established COVID teams across all of our major markets and at the global level. And the purpose of these teams was to really monitor on a day to day basis, oftentimes several times a day, what was going on in our restaurants and how do we make sure that we're keeping our people safe. We introduced a number of service and operational adjustments to do this. As most of you are aware, we went to drive through and delivery only in the preponderance of our restaurants. We closed down about 25% of our restaurants. So a number of things that from a customer standpoint were introduced to really help keep customers safe. From a cruise standpoint, we also introduced a number of guidelines. It varied somewhat country by country, but just using the U. S. As an example, we made 50 different operational adjustments to how we run our restaurants to keep our crew safe and that included everything from social distancing, updated cleaning procedures, PPE into the restaurants in the U. S. We provided about 100,000,000 masks for crew in our restaurants. So a number of different things that we've done operationally there to help ensure that we're keeping our people safe as we're also transacting the business. I would also say I've been really proud about how McDonald's and our franchisees, development partners, supply chain teams have stepped up to provide support to the communities that we serve in. One of our sort of guiding principles and purpose is feeding and fostering communities. And so in the U. S, the Thank you Meals program that we offered for first responders was I think one great demonstration of that. We ended up giving away 12,000,000 meals, and I think just really a great show of appreciation for all the work that first responders have done. In Australia, we added staples of milk, eggs and bread to our menus, enabling customers to use McDonald's contactless drive through and takeaway to shop for the basics. I could go through every country. All of them have done a variety of different things to support our communities in this way and just really proud of that. I would finish by just saying certainly McDonald's, like any business, has not been immune to the coronavirus pandemic and its impact. It has impacted members of our McFamily crew and restaurants, company employees, franchisees. And so I just want to close with expressing as CEO our concern and support for all of you who have been personally impacted by this and we look forward to welcome you soon back to the restaurants. Our next question is what is McDonald's doing to offer more balanced choices on your menu? We're always listening to our customers and evolving to meet their needs. I think one of the ways that we do this is we offer a variety of menu choices to fit the needs of our customers as well as ensuring that ingredient and nutrition information is available and accessible to customers through all owned websites and mobile apps. We understand today more than ever people care about where their food is coming from, how it's prepared, and that's why we've been working hard to make our food even better. We've implemented a number of meaningful changes over the last several years to how we prepare our food. This is going to things like cage free eggs in U. S. And Canada. We've reduced the overall use of antibiotics. And then finally, we've done a number of things to improve the healthy balance of our Happy Meals. So in 2018, we worked in collaboration with the Alliance For the Healthier Generation and made 5 new global Happy Meal goals as part of that. We also have done things from a marketing standpoint to create excitement around the fruit, vegetable and low dairy options that are available with our Happy Meals. Next, we received some comments about the safety of McDonald's restaurants beyond COVID-nineteen. What policies has McDonald's put in place to protect crew and employees? The McDonald's system has an unyielding commitment providing safe and respectful workplace for all. Our franchisees, our local employers, they are deeply embedded in their local communities. And providing a safe and respectful workplace isn't just a moral obligation. It's good business for us to be able to attract people into our restaurants. They need to feel confident that we offer a safe and respectful workplace. And so in support of this commitment, in late 2018, we began implementing new mandatory and interactive training for company owned restaurant general managers and staff employees on things like harassment and discrimination in the workplace. And we shared this training material with our owner operators and their general managers. Then in January 2019, McDonald's enhanced our discrimination, sexual harassment and retaliation policy for training and training for U. S. Staff and company owned restaurant employees to provide a more employee centered approach. And then last year, the U. S. Market also took an important step when it announced an owner operator led employee informed training series for crew on safe and respectful workplaces. We received comments about how McDonald's will support franchisees during our recovery from this pandemic. McDonald's has taken a number of actions to support its franchisees and we're going to continue to monitor the health of our franchisee business and provide support as needed and warranted. In the beginning, one of the first things that we did in a broad based way was we provided significant liquidity support to our franchisees. So in the 1st couple of weeks, when this really became clear was a global pandemic, we offered deferred rent royalty to our franchisees, totaling about $1,000,000,000 of support. In the last couple of weeks as well, we have stepped up with additional support around accelerating our marketing investment. We've helped with some of the costs associated with reopening restaurants. And we've also been very clear with our owner operators on a country by country basis about how we will work with particularly distressed organizations to make sure that they get through this pandemic and continue to do a great job of serving our customers. Finally, there were some questions about whether McDonald's will continue to pay dividends amid the current crisis. McDonald's is financially strong. We came into this with tremendous momentum from our velocity growth plan. We had exceptional performance in 2019. And as the pandemic struck, we took a number of additional steps to bolster our cash position. We did raised about $6,000,000,000 worth of debt to really make sure that we had a strong liquidity position. We also discontinued buybacks of stock. Our capital allocation philosophy really is 1st and foremost about investing in the business for growth, and this includes supporting our franchisees where necessary. And then secondly, prioritizing dividends to our shareholders. We believe that we can effectively fulfill both of these priorities. This concludes our question and answer segment and brings us to the end of our meeting. Thank you for your time and please stay safe and well.