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Assessing a golden opportunity: CEO performance at McDonald’s Lee B. Boyar, Paquita Davis-Friday,
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Assessing a golden opportunity:
CEO performance at McDonald ’ s
Lee B. Boyar and Paquita Davis-Friday
Introduction
In 2012, Don Thompson was elevated from president and chief operating officer of McDonald’s to chief executive officer amid great enthusiasm. An Indiana newspaper excitedly proclaimed,
“Purdue grad makes history as first black CEO at McDonald’s” (Smith, 2012)[1]. But as the leader of a highly visible public company, Thompson would soon be scrutinized by investors, financial analysts and other external stakeholders attempting to evaluate his performance based on publicly available information –and especially the company’s financial reports. Assessing Thompson’s stewardship would require an ability to read and interpret accounting information.
It would also take considerable judgment to determine whether the reported performance was driven by his efforts or forces outside of his control. Put simply, key questions for those assessing Thompson’s stewardship would be: how did the company perform after he took over, and to what extent was Thompson responsible for that performance?
Commenting on Thompson’s accession, an analyst at Barclay’s Capital was circumspect:
“The ideal time to come in as a CEO is shortly after a turnaround has begun gaining traction […] [it is] harder to come in after many years of an incredible run”(Jargon, 2012). Thompson’s predecessor, Jim Skinner, was leaving after an incredible run indeed. After becoming CEO in 2004 under unfortunate circumstances[2], the company’s comparable sales[3]
increased every month from March 2003 through his retirement. McDonald’s compound annual total shareholder return was 21 percent during Skinner’s tenure as CEO, and market capitalization surpassed $100bn for the first time in the company’s history (McDonald’s Corporation, 2012b).
The change in leadership was amicable. Skinner, age 67, was retiring after 41 years at the company and stated that he was “extremely confident in the future of McDonald’s” with Thompson in charge (Dewan, 2012).
Thompson, 49 years old, envisioned a bright future. In his first letter to shareholders, he wrote,
“I have no doubt we will serve more customers more often […] that our customers will be more loyal […] and that our restaurants will be more profitable”(McDonald’s Corporation, 2012a, p. 3).
At the start of Thompson’s tenure, in June 2012, McDonald’s was the 31st largest publicly traded company in the USA. The company described itself as primarily a franchisor, with 81 percent of its approximately 35,000 restaurants operated by franchisees. Franchised restaurants generated revenue for the company in the form of rent, royalties and initial fees.
McDonald’s also earned revenue from sales at company-owned restaurants.
Don Thompson
Thompson grew up in Chicago before being relocated to Indianapolis at the age of ten by his grandmother, who was concerned that their inner city neighborhood was deteriorating (Bennett, 2008). Before he reached high school, his talent for math and science drew the attention of the Minority Engineering Advancement Program, which steered him toward a degree in electrical engineering at Purdue University (Bennett, 2008). At the age of 17, he met Liz, a fellow engineering student, at a scholarship banquet. The two married in 1988.
Disclaimer. This case is written solely for educational purposes and is not intended to represent successful or unsuccessful managerial decision making. The author/s may have disguised names, financial and other recognizable information to protect confidentiality.
Lee B. Boyar is based at the Department of Business and Technology, LaGuardia Community College, Long Island City, New York, USA.
Paquita Davis-Friday is based at Zicklin School of Business, Baruch College, New York, New York, USA.
DOI 10.1108/TCJ-12-2017-0118 © Emerald Publishing Limited, ISSN 1544-9106
j
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According to a profile of Thompson written in 2011, he is “[p]rone to big smiles […] and an occasional bear hug […]. loves football and Southern cooking, plays golf, and supports a host of educational causes […] [and] travels 25 miles from his home in affluent Burr Ridge to attend the Apostolic Church of God in the city’s Woodlawn neighborhood most Sundays” (MacArthur, 2011).
Thompson started his career at Northrop Grumman (then Northrop Defense Systems), but was recruited to the engineering department at McDonald’s in 1990. He transferred to operations in 1993 because he wanted to have more of an impact on decision making.
According to Thompson:“Every operational person at McDonald’s has to work in our restaurants […] If you don’t understand the restaurants, you can’t help run the company. I turned in my suit and tie for a crew uniform being trained by 16 and 17-year olds on how to make French fries and Big Macs. I cleaned and worked openings and closings”(Bennett, 2008).
An early mentor at the company said of Thompson,“He has the ability to listen, blend in, analyze and communicate. People feel at ease with him. A lot of corporate executives have little time for those below him. Don makes everyone part of the process”(Bennett, 2008).
When Thompson was appointed CEO, his compensation increased 70 percent. However, a closer look revealed that his guaranteed salary increased only 18 percent, while the largest increase came from long-term non-equity incentive plan compensation, effectively tying his compensation to the company’s future performance. Details of Thompson’s compensation are provided in Exhibit 3.
Objectives and strategy
Thompson had reached the executive pinnacle, but he served at the pleasure of the board of directors, who were themselves elected by shareholders. Expectations were high. The company had adopted financial targets to measure performance in 2003 and exceeded them in the years prior to Thompson’s appointment. These targets included operating income growth of 6–7 percent per annum[4].
Upon becoming the CEO, Thompson affirmed his commitment to driving continued growth. His strategy placed renewed emphasis on “optimizing our menu, modernizing the customer experience and broadening our access to even more customers” (McDonald’s Corporation, 2012a, pp. 12-3).
Thompson’s growth strategy focused on developing and marketing the company’s lower priced offerings while attempting to upsell customers on premium food and beverage offerings (McDonald’s Corporation, 2013b). New items and a more varied menu would drive consumer traffic. He would modernize the customer experience through a remodeling initiative and provide
“faster, more accurate service through innovative order taking.” New restaurants would be opened, and existing restaurants would have extended hours and more efficient drive-thru service (McDonald’s Corporation, 2012a, p. 14).
Thompson emphasized a long-term approach. In response to a question about whether the company would spend heavily despite market turbulence, he indicated that investments would continue apace, especially in what he termed “higher opportunity markets.” He sought to avoid“an old habit that [the company] had, which was we start developing and maybe the economic environment will get slightly more difficult, so we slow down […].
[we want] to ensure that we have a steady, consistent plan” (McDonald’s Corporation, 2013b, p. 14).
Thompson’s compensation package suggested that McDonald’s emphasized growth in operating income and earnings per share. It provided a target incentive plan that rewarded growth in operating income, a cash performance unit plan linked to growth in operating income, and restricted stock units that were awarded for growth in earnings per share. McDonald’s reported that its objectives for executive compensation were to motivate executives to increase profitability and shareholder returns, to pay compensation that varied based on performance, and to compete for and retain managerial talent.
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McDonald’s performance
Exhibit 1 provides 10 years of selected financial data. During the time period under consideration, the first two and one-half years of Thompson’s tenure as CEO (July 1, 2012–December 31, 2014), McDonald’s faced declining comparable sales, turnover in its executive ranks, trouble in Russia and Ukraine, a food safety problem in Asia and a host of social and environmental issues.
A timeline of these events is provided in Figure 1.
When Thompson assumed the role of CEO in July 2012, he emphasized continuity:“we will stay the course; the recent change in management does not mean a change in strategy”(McDonald’s Corporation, 2012c, p. 3). He appeared to be managing expectations; worsening consumer sentiment, higher labor costs and commodity prices constituted“headwinds”for the business.
Like any experienced manager, Thompson did not wish to be judged on factors outside his control, particularly when the financial impact was negative. He highlighted various previously planned initiatives – technology investment, sponsorship of the London Olympics, and the biannual Owner Operator Convention–that would affect results negatively, cumulatively resulting in about $90m in spending (McDonald’s Corporation, 2012c, pp. 3-4).
Declining comparable sales and executive turnover
Exhibit 2 provides five years of comparable sales and guest count data. Unlike revenue or net income, comparable sales and guest counts were non-GAAP metrics, but according to McDonald’s Chief Financial Officer, they were the key to the company’s financial model and profitability (McDonald’s Corporation, 2014d).
Comparable sales growth in July 2012, Thompson’s first month as CEO, was positive, but less robust than in the previous quarter, when his predecessor held the reins (McDonald’s Corporation, 2012c). In October 2012, Thompson’s fourth month as CEO, comparable sales declined for the first time since 2003. One analyst noted that“McDonald’s faces a general consumer slowdown.
I’ve never seen so much weakness so widespread for them”(Horowitz, 2012). Another analyst cited increasing competition: “the overall pie is shrinking, and companies are competing aggressively to take their piece of it”(Baertlein and Wohl, 2012). According to an executive who worked with Thompson,“The culture of McDonald’s is so sales driven; sales are top of mind in every meeting. You’re in a panic when daily sales dip, let alone a few months’sales”(Austen, 2015).
In November 2012, Thompson fired McDonald’s USA president[5] Jan Fields. According to press reports, Fields was blamed for“[s]trategic missteps, including a shift to higher-priced menu items [such as frappes and smoothies] that crimped consumer traffic”(Sellers, 2012). In Fields’s view, the changes she made were necessary to court the company’s increasingly health-conscious
Figure 1 McDonald’s performance timeline
March 2012 Thompson named new CEO, effective
July 1
October 2012 McDonald’s comparable sales decline for first time since 2003
November 2012 Jan Fields replaced by Jeff
Stratton as president of McDonald’s USA
February 2014 Acute instability in
Ukraine begins impacting McDonald’s
European operations
July 2014 Food safety
issue emerges in McDonald’s Asian operations
August 2014 Jeff Stratton
retires as president of McDonald’s USA and is replaced by Mike Andres
December 2014 Thompson completes second full
year as CEO
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customers (Chira, 2017). Commenting on the challenges of being a female senior executive, Fields stated that she always had to perform better than her peers to be considered equal and preferred being measured by the“straightforward”metric of profits (Chira, 2017). Fields said she was let go because she and Thompson disagreed about strategy and she pushed for changes (Chira, 2017).
Fields, who never completed college, began her career cooking fries at a McDonald’s restaurant.
When she left the company, at aged 57, she was number 25 on Fortune’s “Most Powerful Women”list (Fortune, 2010) and worth millions in company stock (Sellers, 2012). Exhibit 4 shows McDonald’s 10-year historical share price.
Thompson had stated early in his tenure that new items and a more varied menu would drive growth:“new ingredients and greater choice”would broaden the company’s appeal (McDonald’s Corporation, 2013a, p. 12). By late 2013, the company seemed to change course by committing to simplifying its menu (McDonald’s Corporation, 2014a). In a November 2013 meeting with investors, Jeff Stratton, who had replaced Jan Fields as the president of McDonald’s USA, took responsibility for moving too quickly, stating that “the pace of product introduction in my opinion: too fast” (Jargon, 2013). The rapid introduction of new items like egg white delight mcmuffins and blueberry pomegranate smoothies created complexity in the kitchen and slowed service (Jargon, 2013).
When the company reported its full-year 2013 results, Thompson had been CEO for over 18 months. He cited challenging conditions, including increased competitive activity and consumer price sensitivity:“Guest tracking was down across major segments reflecting initiatives that didn’t resonate as strongly with consumers amid a sluggish [Informal Eating Out] industry”(McDonald’s Corporation, 2014a, p. 4). An analyst scrutinizing the business credited Thompson as being“at the heart”of strong same store sales increases for the decade up until 2012 but questioned whether the company could continue to boost sales through better execution, or if instead the company’s growth was now more dependent on the macroeconomic environment. For example, during the first two weeks of October 2013, the US Federal Government experienced a shutdown, the third longest in US history, which led to a loss of productivity, reduced consumer spending and declining consumer confidence (Rattner, 2013). Thompson replied,“We’re focused on those things within our control to drive performance. This is going to be a market share battle”(McDonald’s Corporation, 2014a, p. 9).
In a letter to shareholders in early 2014, Chairman Andy McKenna expressed confidence“in the Company’s strong leadership–epitomized by CEO Don Thompson and the global leadership team” (McDonald’s Corporation, 2013a, p. iii). Despite the chairman’s endorsement of the company’s management, Jeff Stratton announced that he would retire in August 2014 at age 58, following a 41-year career at the company, but less than two years after being promoted to the president of McDonald’s USA (McDonald’s Corporation, 2014b).
Stratton was replaced by Mike Andres, age 56, a longtime McDonald’s executive who was returning to the company after briefly serving as the CEO of Logan Roadhouse, a restaurant chain. An industry analyst was quoted in a press report stating that“[i]t’s hard to argue that this type of turnover doesn’t put more scrutiny on a CEO,”since ultimately the company performance was the CEO’s responsibility (Sachdev, 2014).
In December 2014, toward the end of Thompson’s 30th month as the CEO, he again commented on the decline in comparable sales and attributed it to legacy pricing issues:“We’ve made a change relative to the Dollar Menu and it’s because we have to do a reset at some point”(McDonald’s Corporation, 2014e, pp. 13-4). From the management’s perspective, the company was in a conundrum due to its past marketing success. Edging away from the popular Dollar Menu reduced traffic with price-sensitive customers. On the other hand, margins were increasingly squeezed as costs rose over time and the $1 price point remained constant. Management also argued that the lowest priced items had hurt sales by making premium items seem comparatively expensive.
In December 2014, Mike Andres explained that his strategy would involve pushing decision making closer to the customer by empowering franchisees to make decisions at a local level, in theory, enabling restaurants to increase operational efficiency by reducing the number of items on their menus and, at the same time, optimizing regional variety and marketing. Andres elaborated:
“if you look at the middle of the country, you’re talking about pork and chicken and fries […]. [on]
the West Coast, premium beverages and salads” (McDonald’s Corporation, 2014e, p. 6).
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As an illustrative example, Andres pointed out that McRibs sold twice as well in the center of the country than in other regions, and so that when“we think about how we’re going to market in the future and the effectiveness and efficiency of our marketing dollars, these things need to be taken into account”(McDonald’s Corporation, 2014e, p. 7).
Trouble in Russia and Ukraine
At the end of 2013, management touted strong performance in Russia as a bright spot in its European operations. A year later, Russia and Ukraine became drags on the company’s performance. During the second half of 2014, there was a 50 percent decline in oil prices that led to a collapse in the value of the ruble and new pressure on the Russian president (Kramer, 2014).
In August 2014, Russia closed 12 McDonald’s restaurants in Moscow, citing sanitary violations. It also increased restaurant inspections throughout the country. Analysts suspected that rather than genuine concerns about hygiene, the moves were“more likely the latest shot by Russia in response to U.S. and European sanctions over Moscow’s role in the armed conflict with its former Soviet neighbor, Ukraine.”One analyst, citing specific examples, commented that food inspectors“have been instruments of Russian foreign policy for years”(Marson and Jargon, 2014).
Mark Kalinowski, a restaurant analyst at Janney Montgomery Scott, responded to the restaurant closures by expressing concern about the potential for future interference in McDonald’s business, stating“Russia is not the biggest concern about McDonald’s. We’re mostly concerned about a bloated domestic menu, which has slowed service times […] But is this [an issue] that merits investor concern? Yes”(Marson and Jargon, 2014).
The financial implications of the geopolitical issues in Russia and Ukraine–encompassing store closures, a plunge in consumer confidence, and a spike in imported commodity prices–cost the company $90m in operating income in 2014 (McDonald’s Corporation, 2015). Operating income for McDonald’s European segment was down 2 percent for the year but would have been flat without events in Russia and Ukraine weighing on results.
Food safety issues in Asia
In his 2013 letter to shareholders, Thompson highlighted the company’s “commitment to sustainable sourcing, including the eventual purchase of sustainable beef […] we’re helping to develop globally accepted principles and criteria”(McDonald’s Corporation, 2013a, p. ii).
Despite the trumpeting of these laudable ideals, the Asia/Pacific, Middle East and Africa (APMEA) region experienced what management euphemistically referred to as a“supplier issue,”which took a toll on the company’s sales and reputation, particularly in China and Japan. In the summer of 2014, a reporter in Shanghai secretly videotaped expired meat products being repackaged and labeled with new expiration dates. The meat was then sold to numerous well-known fast food chains, including McDonald’s. The video became an internet sensation and an investigation ensued (Trefis, 2014). The company also incurred costs associated with new procedures to audit its suppliers and ensure cleanliness (Burkitt, 2014).
The financial impact was significant. Comparable sales in China declined 22.7 percent in the third quarter of 2014 before showing signs of recovering in the fourth quarter, when they declined 6.7 percent. Operating income in the APMEA region declined 28 percent for the year, or $450m.
In addition to the food safety issues, the company had to ration fries in Japan due to a labor dispute affecting West Coast dockworkers in the USA that hindered the export of potatoes. The Japanese division reported a $186m loss for 2014,“its first full year loss in 11 years”(Giammonaet al., 2015).
Issues of social equity
In Thompson’s first letter to shareholders as CEO, published in early 2013, he wrote,“We need to make sure our customers feel good about eating at McDonald’s and want to visit us again and again […] that they feel good about the way we treat our people […]” (McDonald’s Corporation, 2012a, p. 3). Yet there was a tension between McDonald’s avowed goal to treat employees well, and the strain that rising wages placed on the financial performance of a company with a growth imperative and highly price-sensitive customers.
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Management tended to perceive McDonald’s as a place of opportunity, perhaps understandably given that senior executives such as Jan Fields, Jeff Stratton and many others had started as low-wage workers[6]. According to Thompson,“You don’t have to have a high school or college degree to have a career path forward at McDonald’s. We employ people who others don’t employ, let alone move on to be a VP in our organization”(Austen, 2015).
According to Demos, a public policy organization in New York, the ratio of fast food companies’
CEO compensation to that of the average fast food worker[7] was 1,200 to 1 in 2012 (Ruetschlin, 2014). The disparity between highly compensated executives, like Thompson, whose total compensation was $13.8m in 2012, and minimum wage restaurant workers, exposed him to sustained criticism. His wife, Liz Thompson, found this difficult to understand: “It’s set by the board of directors, as is the case with any CEO,” she said. “He’s paid for performance.” Thompson, too, was exasperated.“What you don’t expect are the personal attacks,”he said.
“Especially the way I grew up. I can’t believe it would come to that”(Austen, 2015).
In fact, when Thompson told business students at Northwestern University in May 2014 that he thought the minimum wage should be increased, there was an adverse reaction from franchisees and shareholders who felt he had“sold them out”(Austen, 2015).
Looking to the future
In October 2014, Thompson was asked by an analyst if the quick service restaurant business model was broken. The analyst referred specifically to remarks Steve Ells, founder and CEO of Chipotle Mexican Grill, had made the day before. Ells stated that“over the last decade, there’s been a noticeable shift among customers away from traditional fast food and casual dining to fast casual restaurants [such as Chipotle]”(Chipotle Mexican Grill, 2014, p. 4). He cited food industry research indicating that“millennials are turning away from traditional fast food in favor of better food and a more enjoyable experience overall. They are more concerned with how food is raised and prepared than previous generations and are willing to seek out and pay a little more for something they recognize as better: better tasting, better for the environment and better for their well-being”
(Chipotle Mexican Grill, 2014, p. 4). Twisting the knife, Ells contrasted the robust comparable sales growth at Chipotle to the struggle for growth at traditional fast food companies.
Thompson replied in a characteristically amiable way, noting that he had known Ells for years, dating back to when Chipotle and McDonald’s had entered an initial partnership and Chipotle utilized the McDonald’s supply chain[8]: “I would not say Steve is wrong or right” (McDonald’s Corporation, 2014c, p. 14). But Thompson seemed to hint that the sheer size of McDonald’s–with sales and locations approximately 20 times those of Chipotle–undercut the criticism made of it:“There are cases and there are markets where organics are drivers at a higher level, but I would offer that the highest level is more about transparency, integrity and also the ability to customize what they want on a sandwich or a burger” (McDonald’s Corporation, 2014c, p. 17). Thompson wanted to correct customer misapprehensions about food quality through greater transparency and to see what could be done about moving to sustainable sourcing and organics over time and in situations where customers valued it. While he wanted to reduce the overall number of items on the McDonald’s menu–and empower franchisees to make those decisions at a local level – he would simultaneously expand customer choice by allowing customers to select exactly what items they wanted on their sandwiches and burgers (Johnson, 2016).
Yet if McDonald’s was being excoriated by some for not matching the purportedly high-quality standards of fast casual restaurants like Chipotle, it was also being tugged by others in a very different direction. One analyst noted that Burger King – whose financial performance had improved following cost cuts –had gained traction with a “simpler and cheaper version of the McDonald’s menu” (The Economist, 2015). The case for following suit was not straightforward, however. Sales at an average McDonald’s restaurant in North America were still approximately double those of an average Burger King, and presumably it was easier to drive comparable sales growth off a lower base (The Economist, 2015).
If commentators were at times pointing in different directions, Thompson himself seemed far from satisfied with the status-quo. Discussing the company’s 2014 performance, he emphasized that
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it was a“building year”(McDonald’s Corporation, 2015, p. 3). Speaking more broadly, he stated that in the last couple of years the company had experienced quite a bit, much of it unforeseen, but that he and his team were laying the groundwork for future growth. The year ahead would be
“a year of regaining momentum”(McDonald’s Corporation, 2015, p. 3).
As Thompson completed his second full year as the CEO, it seemed an opportune moment for the company’s stakeholders to evaluate how the business had performed under his stewardship.
Notes
1. Before Thompson’s appointment, there were just five black CEOs in the Fortune 500.
2. Skinner was promoted after the company lost two CEOs in a short period of time. CEO Jim Cantalupo died of a heart attack on April 19, 2004. His successor, Charlie Bell, resigned on November 22, 2004 after being diagnosed with colon cancer.
3. As defined by McDonald’s, comparable sales represent the percent change in sales from the same period in the prior year for all restaurants, whether operated by the Company or franchises, in operation at least 13 months, including those temporarily closed.
4. The financial targets were measured in constant currencies and also included performance goals for system-wide sales and return on incremental invested capital.
5. The president of McDonald’s USA, which entailed responsibility for the company’s domestic market, was a coveted role and a potential stepping stone to CEO. Prior to being elevated to the president and chief operating officer in January 2010, Thompson himself was the president of McDonald’s USA for three-and-a-half years.
6. In an October 2013 meeting with investors, Stratton had been captured in a well-publicized video being confronted by a minimum wage protestor. She asked if it was fair that as a mother of two she earned only
$8.25 per hour after ten years at the company. In response, Stratton, who began his career as a teenager in a Detroit restaurant, replied,“I’ve been at McDonald’s for forty years.”
7. Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act called for regulations from the US Securities and Exchange Commission that would require public companies to disclose the pay ratio between the issuer’s median employee and the issuer’s chief executive officer. The regulations were finalized on August 5, 2015, with an effective date of October 19, 2015, requiring compliance for the first fiscal year beginning on or after January 1, 2017.
8. McDonald’s made an initial investment in Chipotle in 1998. It accumulated a 90 percent ownership stake, but fully divested itself in 2006.
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Exhibit 1
Exhibit 2
Table E2 Comparable sales and guest count increases/(decreases)
2012 Sales
Guest
Counts Sales
Guest
Counts Sales
Guest Counts Sales
Guest
Counts Sales
Guest Counts
USA (2.1%) (4.1%) (0.2%) (1.6%) 3.3% 1.9% 4.8% 3.3% 3.8% 5.3%
Europe (0.6) (2.2) 0.0 (1.5) 2.4 (0.5) 5.9 3.4 4.4 2.7
APMEA (3.3) (4.7) (1.9) (3.8) 1.4 2.2 4.7 4.3 6.0 4.9
Other Countries and Corporate 6.6 (1.5) 7.0 0.4 7.7 3.0 10.1 4.5 11.3 8.3
Total (1.0%) (3.6%) 0.2% (1.9%) 3.1% 1.6% 5.6% 3.7% 3.1% 1.6%
2010 Thompson’s Tenurea
2014 2013 2011
Notes: aDon Thompson’s tenure as CEO began on July 1, 2012. According to company filings, assuming no change in cost structure, a 1 percentage point change in comparable source for either the USA or Europe would change annual diluted earnings per share by about 4 cents
Source: Company filings
Table E1 Selected financial data
Dollars in millions, except per share data 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005
Company-operated sales $18,169 18,875 16,803 18,293 16,233 15,459 16,561 16,611 15,402 14,018
Franchised revenues $9,272 9,231 8,964 8,713 7,842 7,286 6,961 6,176 5,493 5,099
Total revenues $27,441 28,106 25,767 27,006 24,075 22,745 23,522 22,787 20,895 19,117
Operating income $7,949 8,764 8,605 8,530 7,473 6,841 4,433 3,879 4,433 3,984
Net income $4,758 5,586 5,465 5,503 4,946 4,551 3,544 2,395 3,544 2,602
Cash provided by operations $6,730 7,121 6,966 7,150 6,342 5,751 5,917 4,876 4,341 4,337
Cash used for investing activities $2,305 2,674 3,167 2,571 2,056 1,655 1,625 1,150 1,274 1,818
Capital expenditures $2,583 2,825 3,049 2,730 2,135 1,952 2,136 1,947 1,742 1,607
Cash used by financing activities $4,618 4,043 3,850 4,533 3,729 4,421 4,115 3,996 5,460 (442)
Treasury stock purchases $3,175 1,810 2,605 3,373 2,648 2,854 3,981 3,949 3,719 1,228
Common stock cash dividends $3,216 3,115 2,897 2,610 2,408 2,235 1,823 1,766 1,217 842
Financial poisition at year end:
Total assests $34,281 36,626 35,386 32,990 31,975 30,225 28,462 29,392 28,974 29,989
Total debt $14,990 14,130 13,633 12,500 11,505 10,578 10,218 9,301 8,408 10,137
Total shareholders’ equity $12,853 16,010 15,294 14,390 14,634 14,034 13,383 15,280 15,458 15,146
Shares outstanding in millions 963 990 1,003 1,021 1,054 1,077 1,115 1,165 1,204 1,263
Per common share:
Earnings-diluted $4.82 5.55 5.36 5.27 4.58 4.11 3.76 1.98 2.83 2.04
Dividends declared $3.28 3.12 2.87 2.53 2.26 2.05 1.63 1.50 1.00 0.67
Market price at year end $93.70 97.03 88.21 100.33 76.76 62.44 62.19 58.91 44.33 33.72
Company-operated restaurants 6,714 6,738 6,598 6,435 6,399 6,262 6,502 6,906 8,166 8,173
Franchised restaurants 29,544 28,691 27,882 27,075 26,338 26,216 25,465 24,471 22,880 22,593
Total Systemwide restaurants 36,258 35,429 34,480 33,510 32,737 32,478 31,967 31,377 31,046 30,766
Franchised sales $69,617 70,251 69,687 67,648 61,147 56,928 56,928 46,943 41,380 38,913
Global Market Shareb 7.20% 7.50% 8% 8% 8% 8% 8% Not disclosed
Thompson’s Tenurea
Notes: aDon Thompson’s tenure as CEO began on July 1, 2012; bprior to 2013, the company rounded global market share to the nearest integer in its annual reports. After 2013, it reported a more precise number (rounded to the nearest tenth)
Source: Company filings
THE CASE JOURNAL
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Exhibit 3
Exhibit 4
Corresponding author
Paquita Davis-Friday can be contacted at: [email protected] Table E3 Compensation components and amounts
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
Salary 1,250,000 17.2% 1,225,000 12.9% 979,167 7.1% 829,167 20.4%
Stock Awards 3,271,818 44.9% 4,667,552 49.1% 660,129 4.8% 625,165 15.3%
Option Awards 2,362,665 32.4% 1,769,687 18.6% 3,206,663 23.3% 785,902 19.3%
Non-Equity Incentive Plan Compensation –Long-term
– 0.0% 1,400,000 14.7% 1,400,000 10.2% 1,526,000 37.5%
7,181,144 52.2%
All other compensation 404,095 5.5% 434,425 4.6% 324,816 2.4% 307,514 7.5%
Total $7,288,578 $9,496,664 $13,751,919 $4,073,748
Thompson’s Tenurea
2011 2012
2013 2014
Note: aDon Thompson’s tenure as CEO began on July 1, 2012 Source: Company filings
Figure E1 McDonald’s Corporation 10-year historical share price
$–
$20.00
$40.00
$60.00
$80.00
$100.00
January 1, 2005 January 5, 2005 January 9, 2005 January 1, 2006 January 5, 2006 January 9, 2006 January 1, 2007 January 5, 2007 January 9, 2007 January 1, 2008 January 5, 2008 January 9, 2008 January 1, 2009 January 5, 2009 January 9, 2009 January 1, 2010 January 5, 2010 January 9, 2010 January 1, 2011 January 5, 2011 January 9, 2011 January 1, 2012 January 5, 2012 January 9, 2012 January 1, 2013 January 5, 2013 January 9, 2013 January 1, 2014 January 5, 2014 January 9, 2014 January 1, 2015
Share price
Thompson begins tenure as CEO – $88.41
Thompson completes second full year as CEO – $93.70
Note: Historical price data for McDonald’s Corporation found on Yahoo! Finance (n.d.)
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