AGM 2012

May 24, 2012

Good morning. And welcome to McDonough's Annual Shareholders Meeting. In addition to everyone here, we are joined by others in the Grand Oleks Ballroom and those of you on our webcast. So welcome to all of you. I'd like to offer a special welcome to the students here from Ariel Community Academy, a public school in Chicago. These students from this outstanding school have been attending our annual meeting for a number of years, usually in Grand Oaks. So we're delighted to have them here with us this morning. So welcome students. If you're here in person, you have a copy of the agenda of our meeting for today and information about our procedures. With me on stage, our Chief Executive, Jim Skinner General Counsel and Corporate Secretary, Gloria Santona President and Chief Operating Officer, Don Thompson and Chief Financial Officer, Pete Benson. As we meet today, McDonald's continues to be a strong business and a sound investment. Jim Skinner and Don Thompson will detail McDonald's progress and plans in a few moments following the business portion of the meeting. The Board its oversight role believes your management team is doing the right thing with the right people on behalf of McDonald's customers and shareholders. And you can be assured that your board continues its commitment to good corporate governance and management oversight. Our board is comprised of diverse, independent minded and experienced group of business leaders, all of whom remain committed to representing you and enhancing shareholder value. I'm now pleased to introduce the Board of Directors to you. And as I introduce our individual members, please hold your response until everyone has been introduced. So in addition to Jim Skinner, a Director since 2004 Don Thompson, a Director since 2011 and a nominee for the Class of 2015 and me, a director since 1991 and a nominee for the class of 2015. Your directors are Susan Arnold, a director since 2008. Susan is former President of Global Business Units of Procter and Gamble. Bob Eckert, a Director since 2003 and a nominee for the Class of 2015. Bob is Chairman of Mattel Inc. Rick Hernandez, a Director since 1996 and a nominee for the Class of 2015 is President and CEO of Intercom Security Systems and Non Executive Chairman of Nordstrom's Inc. Rick is unable to join us today because he is attending his son's graduation ceremony this morning at Harvard Law School. Gene Jackson, a Director since 1999 and a nominee for the Class of 2015. Gene is President of Direct to Consumer for Nike Inc. Rick Lennie, a director since 2005 is an operating partner of Friedman, Fleischer and Loew LLC, a private equity firm. Walter Massey, a director since 1998, is President of the School of the Art Institute of Chicago. Carey McMillan, a director since 2003 is CEO of True Partners Consulting. Sheila Penrose, a Director since 2006 is the Non Executive Chairman of the Board of Jones Lang LaSalle Incorporated. John Rogers, a Director since 2003 is the Founder, Chairman and CEO of Aerial Investments LLC. Roger Stone, a Director since 1989 is Chairman and CEO of Capstone Paper and Packaging And Myles White, a Director since 2009 is Chairman and CEO of Abbott. So I'd like to ask the Director to stand and be recognized. We appreciate your great service and commitment. Thanks to all of you. We're also delighted with us today to have McDonough's honorary Chairman Fred Turner as well as past directors Capp Adams and Don Lubin. I now want to call the business portion of today's meeting to order. I will turn to Gloria Santona, our Corporate Secretary to begin this session. Gloria? Thank you, Andy. I can advise that a quorum of the company's shares outstanding is present to conduct the meeting. The polls are open and will close at the end of the business portion of the meeting. Our order of events will be as follows. The Chairman will introduce each proxy proposal and after all the proposals have been presented, we'll ask if anyone has questions or comments on the proposals. If you have questions or comments on other McDonald's business matters, please save them for the general discussion period later in the meeting. So that as many shareholders as possible have an opportunity to speak, we ask that you limit yourself to one question and no more than 1 minute. I also direct your attention to the rules of order that are printed in your program. Following the presentation of all the proposals, the Chairman will ask for a motion and a second on all the proposals at one time. If you've not already voted your shares and need a ballot, please raise your hand and an usher will provide one to you. If you have already submitted your proxy, you do not need to vote by ballot. Broadridge Financial Solutions, the independent Inspector of Election receives and tallies all votes. I'll now turn the meeting back to our Chairman for the presentation of the proposals. Thank you, Gloria. Our first order of business is the election of Bob Eckert, Rick Hernandez, Gene Jackson, Andrew McKenna and Don Thompson as Directors. The second proposal is an advisory vote on executive compensation. The 3rd proposal is the approval of the 2012 omnibus stock ownership plan. The 4th proposal is the approval of a declassification of the Board of Directors. The 5th proposal is the approval of the shareholders' right to call special meetings. The 6th proposal is the approval of Ernst and Young as the company's independent auditor for 2012. And the final order of business is an advisory vote on a shareholder proposal. At this time, I would call on Doctor. Andrew Bremer, who is here to present this proposal in 2 minutes or less on behalf of John Harrington, the proponent. Doctor. Bremer? So hello. My name is Andrew Bremer, and I'm a Board internist, pediatrician and pediatric endocrinologist. I stand before you today to communicate the growing concerns, both nationally and internationally, and have led to today's resolution regarding how McDonald's and other fast food enterprises are contributing to the global epidemic of childhood obesity and diet related disease. I'm on the faculty at the Vanderbilt University School of Medicine in Nashville, but I want to make it clear that these are my personal statements and not necessarily those of the university. My pediatric colleagues and government officials the world over are now quick to acknowledge the science linking McDonald's style fast food and the fast food industry's practices to the decline of children's health and well-being. One practice that has commanded the public's attention is the marketing of nutrient poor and highly processed fast food to children. The American Academy of Pediatrics, of which I'm a fellow and member, recently drew this conclusion with the recommendation of a policy prohibiting junk food marketing to kids. Importantly, the corporation's response to criticism from the health community regarding the role of McDonald's and the current epidemic of childhood obesity and metabolic dysfunction unreasonably exposed to shareholders to significant risk. The highly visible global backlash regarding the health footprints of McDonald's practices on children's health is doing the brand no favors. It is not enough to point to so called healthier menu items when children are still the target of aggressive marketing of an overwhelmingly unhealthy brand. It is not enough to launch misleading Forged into Farm campaigns to make small changes to Happy Meals and to advance countless new PR tactics to create a perception of change. I strongly believe McDonald's can mitigate its risk to shareholders and to the long term sustainability of the corporation by accepting the resolution and producing an assessment of the corporation's health footprint in order to take full responsibility for the corporation's operations, its impact on kids' health and its cost to our healthcare system. It is time McDonald's address the growing public concern about its role in today's public health crisis and take meaningful action before international, federal and local governments require the corporation to do what the health community and my patients believe is right and what should have been done long ago. In closing, accepting this resolution provides a great opportunity for McDonald's to once again be a pioneer in the fast food industry by altering its current business practices to address the health of our nation. Thank you. Thank you, Doctor. Bremer. Are there any questions or comments on any of these proposals? Is there a motion to move on all the proposals? I'll vote. Your Board of Directors recommends a vote in favor of the election of all director nominees and in favor of the appointment of Ernst and Young as auditor. The Board of Directors also recommends a vote in favor of the other managed for management proposals and a vote against the advisory shareholder proposal. The reasons for the Board's recommendation in each proposal are outlined in the proxy statement. If you are voting at the meeting, please complete and sign your ballot and motion for an usher to collect it. And again, if you've already submitted your proxy, you do not need to vote by ballot. Now the business portion of this meeting has been concluded and the polls are now closed. I will now turn the meeting over to Jim Skinner for remarks on McDonald's business and to lead the general question and answer session. As I believe all of you may all know, Jim is retiring next month after more than 40 years with McDonald's and the past 8 years as CEO. Jim's tenure as CEO has been truly remarkable. He's helped to revitalize the brand and has led McDonald's to historic success. He's a man of the highest integrity and has always been committed to values based leadership. So I want to take this opportunity to thank Jim for his tremendous leadership and the incredible mark he has made on this business. So ladies and gentlemen, Jim. Jim? Well, thank you, Andy, for that generous introduction and thank you, everyone. First, let me say, we appreciate you being here today and most importantly, your investment in McDonald's. It's been my honor to be part of this brand for so many years and I'm immensely proud of what we've accomplished together during my tenure as CEO. Our success continues to be the result of our plans and our people. We've remained committed to our proven customer focused business strategy known as our plan to win and its focus on the 5 P's people, products, place, price and promotion. And we continue to act as one system with all of our partners working together. This includes our world class owner operators who own and operate more than 80% of the McDonald's restaurants around the world. Our outstanding global suppliers who guarantee delivery of safe high quality products to more than 33,500 restaurants every day and the 1,700,000 employees who support and work in our restaurants to deliver a superior customer experience. Among them is our McDonald's leadership, and I'd like to recognize the members who are here this morning. You've already met our Board of Directors, and I want to thank Andy and all of our independent directors for your outstanding governance and insight. I also want to recognize our senior management team, starting on stage with Pete Benson, Gloria Santona and of course, Don Thompson, our current President and Chief Operating Officer and our CEO elect, who you'll hear from in a moment. Also, Jose Amario, Head of Global Supply Chain Restaurant Development and Franchising Bridget Coughing, Chief Communications Officer Jan Fields, President, McDonald's USA Rich Floris, Chief Human Resources Officer Doug Gore, President of McDonald's Europe Jim Johannessen, Chief Operating Officer, McDonald's USA Kevin Newell, Chief Brand Officer Jeff Stratton, Chief Restaurant Officer Tim Fenton, President, McDonald's Asia Pacific, Middle East and Africa and our newly elected Chief Operating Officer. And Dave Hoffman is with us this morning, who was announced yesterday publicly that he will succeed Tim as President of our APMEA region. I ask those members of the senior management team to stand and be recognized. McDonald's continues to be on the right course as evidenced by our 2011 results. Last year, we increased global comparable sales by 5.6%, marking our 9th consecutive year of same store sales growth. Once again, every area of the world contributed with comparable sales up in every segment. The U. S. Increased 4.8%, Europe grew by 5.9% and our combined region of Asia Pacific, Middle East and Africa increased by 4.7%. Operating income grew by 10% in constant currencies, and we increased our market share around the world. We returned $6,000,000,000 to shareholders through share repurchases and dividends paid, and we are now serving a record number of guests, 68,000,000 customers around the world every day. We've continued our momentum into 2012 as Q1 operating income rose 9% and earnings per share grew 8%, both in constant currencies. Moving forward, we see significant opportunity to continue growing our business. Within our plan to win, we're accelerating our focus on 3 global priorities: optimizing our menu with relevant food and beverage offerings, modernizing the customer experience by upgrading every aspect of our restaurants and broadening accessibility to brand McDonald's through a continued focus on new restaurant development convenience and value. I'll ask Don to highlight our specific plans around each of these priorities, but what they will represent is our commitment to strengthening both our foundation and innovation, staying true to the business of our basic fundamentals, quality, service, cleanliness and value while continuously delivering new ways to meet the evolving needs of our customers. For optimizing the menu, it's about balancing our classic favorites with exciting and new relevant offerings. Modernizing our experience means delivering all the things customers expect from us and doing it in new and relevant ways. And broadening our accessibility is how we build on the hallmarks of convenience and value and make them even stronger as a part of our brand. We're also committed to keep innovating in all the ways we do good. One of the things I'm most proud of is what McDonald's brand stands for and how we work to make a positive impact on our communities around the world. We're determined to keep doing more in all the areas where we make a difference. Our work across a broad spectrum of sustainability from environmental stewardship animal health and welfare to sustainable sourcing, our commitment to our people through significant investments in training and career opportunities, our menu evolution that continues to deliver greater balance and choice for consumers and our countless community outreach efforts and continued support for Ronald McDonald House Charities. Now here's a recent ad about our commitment to the charity that bears our name. I'm confident that we're focused on the right things to continue growing our business and our brand. And I'm also confident in our leadership. The business is in sure hands with Don, who's been an outstanding President and Chief Operating Officer and will continue to excel in his new role as Chief Executive Officer. Again, it has been my privilege to steward this great brand and I appreciate the support from all of you over the years. And with that, I'd like to invite Don up to share more about our key priorities in the future. Don? Good morning. Thanks so much, Jim, and thanks for your tremendous leadership and all that you've done for McDonald's. You've been a terrific partner and a terrific mentor. So good morning, everyone. I'd like to briefly highlight the priorities that Jim discussed and how we're moving McDonald's into the future. Our overarching goal remains the same and that is to be our customers' favorite place and way to eat and drink. So let's start with optimizing our menu. We continuously look to innovate, which is why we have a strong global pipeline with products like Chicken McBites, our large wraps filled with fresh produce and chicken or beef and the new Cherry Berry chiller, which is part of our growing line of McCafe specialty coffees, smoothies and blended ice drinks. We also continue to add more fruits, vegetables and grains to our menu offerings, including what we've done with our 4 item Happy Meals and our Wholesome Starts breakfast menu, which includes perennial favorites like our Egg McMuffins and our great tasting oatmeals. Now you should have received a BR guest card for our blueberry, banana, nut or fruit and maple oatmeals. So please enjoy this delicious offering on us. We also remain committed to our core classics. They are a very important part of our overall menu. In fact, here's a new television ad that puts a fresh spin on one of our most beloved products. Fries. Our second priority, which is modernizing the customer experience, is about ensuring that our customers see our brand as truly modern and relevant to their lives. As many of you know, the biggest thing we've been doing is updating the look of our restaurants so that they're much more modern and contemporary. Around the world, we've already re imaged more than 45 percent of our interiors. And when it comes to our restaurant exteriors, we expect to hit the 50% milestone in the next few years. Modernization though goes beyond just reimaging. It also includes the many other ways that customers interact with our brand. Mobile ordering in Australia, delivery in Asia and self order kiosk in Europe are a few great examples of how we continue to improve the overall customer experience. A brand like ours has many touch points that extend beyond the restaurants themselves. And one of those touch points is the Olympics, where we've been a proud partner since 1976. The Olympic Games have always been a great opportunity to showcase so much of what we're committed to, from our food quality to children's well-being. And we're really looking forward to an outstanding London Olympics this summer. Here's the latest depiction of our storied relationship with the Olympic Games and with local sports around the world. For the gold. And a big mac and fries. I won. No. I won. Okay. You both get a happy meal. Now our final priority is broadening accessibility, so that we're more available to our customers when and where they want us. It starts with providing even greater convenience by being open longer and more and more restaurants and by adding new restaurants when and where appropriate. This year, we plan to open about 1300 new restaurants around the world and we'll do it in emerging markets like China, Brazil, India and Russia, as well as in more established markets like the U. S. And France. Another important aspect of accessibility is ensuring that we have something on our menu for everyone at every price point. We know value is top of mind for consumers today. So we're delivering more relevant price value across our menu by emphasizing branded affordability at every price tier. These are McDonald's top priorities within our plan to win and where our entire system continues to focus. With all of our partners aligned and committed to further building our business and our brand, I am extremely confident in our future. We're determined to make McDonald's more successful and more valuable to our millions of customers and to all of you who support us. We have received the preliminary voting results from the independent Inspector of Election. And our final results will be posted on McDonald's website after all of the votes have been tallied and certified. But the preliminary results are as follows. Shareholders have elected each of the nominees for director with the support of at least 97% of the shares voted. Shareholders have approved the proposal relating to an advisory vote on executive compensation, which is supportive 94% of the shares voted. Shareholders have approved the proposal related to the 2012 omnibus stock ownership plan with the support of 94% of the shares voted. Shareholders have approved the proposal to declassify the Board of Directors with the support of 66 0.5% of outstanding shares of McDonald's stock. Shareholders have approved the proposal to give shareholders the right to call special meetings with the support of 66.7 percent of the outstanding shares of McDonald's stock. And shareholders have approved Ernst and Young as the company's independent auditor with the support of 98% of the shares voted. The advisory shareholder proposal requesting a nutrition report has not been approved by shareholders receiving the support of 6.4% of the shares voted.