McDonald s Corporation

Transcription

1 UNIVERSITY OF OREGON INVESTMENT GROUP October 8, 2010 Consumer Goods McDonald s Corporation RECOMMENDATION: BUY Stock Data Price (52 weeks) $ Symbol/Exchange MCD / NYSE Beta.54 Shares Outstanding 1.1 (B) Average daily volume 6.2 (M) (3 month average) Current market cap 80 (B) Current Price Dividend Dividend Yield $ % Valuation (per share) DCF Analysis $92.36 Comparables Analysis Target Price Current Price $89.69 $91.02 $74.92 Summary Financials Revenue Net Income Operating Cash Flow 2009A 22,744 (M) 4,551 (M) 5,751 (M) BUSINESS OVERVIEW McDonald s Corporation is the world s largest fast-food chain, with over 32,000 restaurants worldwide. Founded in 1940, McDonald s established the principles of what is now considered fast food service. In contrast to a standard business model, the vast majority of McDonald s restaurants are franchised, while a minority are companyowned. Under a conventional franchise agreement, McDonald s will purchase the location of a new restaurant and Covering Analyst: Ari Siegel asiegel@uoregon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with firms held in UOIG s portfolio. In addition, members of UOIG may attempt to obtain employment positions with firms held in UOIG s portfolio.

2 lease the space to a franchisee. Both the franchisee and McDonald s will then invest capital into improving the property. Having the majority of McDonald s restaurants franchised allows the company to stay locally relevant, with specific restaurant owners able to make tactical decisions about the geographic locations they operate in. The company sells a wide variety of items, for breakfast, lunch and dinner. At breakfast, customers have the option of purchasing items such as the Egg McMuffin, Sausage Burrito, Hotcakes, Hash Browns, Coffee and Sweet Tea. Lunch and Dinner Menu s include the famous Big Mac, other types of burgers, Chicken Sandwiches, Salads, other Beverages and various types of Dessert. Total revenue is broken down into four geographic operating segments. The United States accounts for approximately 35% of total revenue, and has the highest operating margin of slightly over 40%. Europe accounts for 40% of total revenue, and has an operating margin of 28%. The Asian/Pacific, Middle Eastern and African region (APMEA) accounts for 20% of revenue with an operating margin of 23%. Finally, Other & Corporate represents corporate activities as well as operations in Canada and Latin America, accounts for 5% of revenue and is not currently profitable. While there are significant differences by store and region, products sold at most restaurants have a similar cost structure. Currently about 10 items make up over 75% of McDonald s commodities costs. While information on the costs of specific ingredients is not released, major commodity costs include beef, chicken, eggs and dairy. In addition, the company constantly spends money on marketing programs that differ by region, and constantly invest in improvements to new and existing stores. 60% 50% 40% 30% 20% 10% 0% Operating Segments US Europe APMEA Other & Corporate Percent of Revenue Percent of Operating Margin BUSINESS AND GROWTH STRATEGIES McDonald s titles its global business strategy the Plan to Win. This strategy focuses on being bigger, not just better. The success of this plan is highlighted by constant increases in comparable store sales, while new restaurants are opened in tandem. It is important to note that in recent years, McDonald s has moved to focus on growing its core business only. It is unlikely that management will pursue any major acquisitions, and the company has recently divested its interest in Chipotle Mexican Grill, RedBox and various other businesses. At a more granular level, growth strategies differ based on the needs of different regions. Within the United States, growth is being pursued by continued focus on value and classic menu items, as well as the launch of breakfast, smoothie and coffee programs. In addition, the company is working to open stores in more convenient locations and extend hours in order to serve an increasing number of customers. As part of the launch of the smoothie program in 2010, a large portion of capital expenditures has been going into getting the proper machinery up and running at stores nationwide. Moving into the future, due to the mature market and stagnant U.S. economy, it is expected that top line growth will be low for an extended period of time. Within Europe, the company is focused on continuing to create brand equity and relevance. A larger amount of money is being spent on marketing in the region. As McDonalds is viewed as slightly more upscale in Europe, management is also working to support a greater menu variety. The breakfast and beverage strategies have not been pushed forward in European countries as quickly as in the United States, and this will be an area for potential growth 2

3 moving into the future. While Europe has more somewhat potential for growth going into the future than the United States, sales growth is still expected to be relatively modest. Within APMEA, McDonald s growth strategy is slightly different from that of the previous two more developed markets. While a significant portion of growth in the U.S. and Europe will come from comparable sales increases, growth in APMEA will also be driven by new store openings. Because this market is by far the least penetrated, and least effected by the global recession, there is still major potential for a larger number of new restaurants. APMEA will be a major driver of overall growth for the company moving into the future. McDonald s has been slowly decreasing its presence in Latin America due to issues establishing profitability in past years. This segment will not be a major part of operations moving into the future % Operating Segment Growth 20.00% 10.00% 0.00% % % % % % U.S. Europe APMEA Corporate & Other MANAGEMENT AND EMPLOYEE RELATIONS Jim Skinner is currently the President and CEO of McDonalds Corporation. He began at McDonalds in 1971 as a restaurant manager trainee. Skinners Plan to Win Strategy is accredited with helping to turn the company around, increasing sales from $50 billion in 2004 to $70.1 billion in Andrew J. McKenna is currently the Non- Executive Chairman, and has been since He has served on many civic, community and philanthropic boards. McDonald s management team has created a number of successful business ventures, proving their skill within the restaurant industry. In addition to the core company s individual success, management oversaw the success of the growth of Chipotle Mexican Grill and Red Box. RECENT NEWS McDonald s Raises Quarterly Cash Dividend by 11% - Reuters - 9/23/2010 McDonald s Board of Directors declared a quarterly cash dividend of $0.61 per share of common stock payable on December 15 th. Including share repurchases, the total expected cash returns to shareholders is expected to be approximately $5 billion for These cash returns reflect McDonald s commitment to maximizing shareholder value, and this marks the 35 th consecutive year of a dividends increase for MCD stock. 3

4 Cigna, Restaurants Seek Low-Wage Health-Plan Waivers Bloomberg 9/30/2010 :U.S. restaurants have asked the federal government to wave health overhaul rules that may force companies to abandon low-cost mini-med plans that insure 1.4 million minimum-wave employees. McDonald s specifically announced it may be forced to seek alternative health care plans if it can t get a waiver from the legislation. While politically this is important news, labor costs for McDonald s will likely not be significantly affected regardless of what action the company takes. McDonald s Sales Boosted by Smoothies in August Wall Street Journal 9/9/2010 McDonald s Corp. s same-store sales rose 4.9% in August from a year ago as U.S. sales continued to get a boost from its blended-frozen beverages. McDonald s has been seeing above expected sales of its frozen beverages over the past year. This type of same store sales growth is an example the difference between marketing in domestic areas versus APMEA, as well as where growth will be occurring at McDonald s in the future. INDUSTRY The Fast Food industry is characterized by a high level of competition, relatively cheap food and varied growth by region. In more developed countries, consumers are spending less on eating out due to the recession, and are becoming increasingly health conscious. These social and economic trends have created the need for fast food chains to offer healthier menu items in addition to items that offer more value. Over the next five years, industry growth is forecasted to grow at an annualized rate of 2.5% within the United Sates. Outside of economically mature countries, emerging markets represent potentially huge growth for major operators. International expansion will be the largest source of revenue and profit growth for large chains over the next decade. In addition, companies are moving to offer higher margin items such as coffee and smoothies in order to sustain profit levels. Industry revenue is sensitive to consumer sentiment and disposable income. Currently, both of these variables are at depressed levels, and are expected to slowly recover moving into the future. Due to the relatively cheap meals sold at fast food restaurants, the industry was much less damaged than the rest of the economy in the midst of the global recession. This relative insensitivity to economic cycles is reflected by a low industry beta. Nevertheless, McDonald s saw a decrease in sales of 3.31% in 2009, and as the economy improves increased sales are expected to follow. IBISWORLD forecasts for U.S. aggregate Consumption and the Consumer Sentiment Index are as follows: 4

5 These two factors are expected to follow similar trends in international markets, indexes expected to reach slightly depressed pre-recession levels within a few years. Barriers to entry throughout the industry are extremely low, and so competition globally is extremely high. Market share by competitor within the United States is as follows: Fast Food Restaurants sell inventories quickly, and generally have extremely low margins. Average pretax returns to owners are between 3% and 5% of revenue. The major costs that lead to these low margins are food and wages. Over the last few years, and moving into the future labor costs are expected to increase as a percent of revenue for the industry. Food costs are expected to decrease in the short term, with major costs in the industry including dairy, egg and poultry, fish, beef, pork and chicken. There are three main service segments within the fast food industry. These segments are limited service restaurants, cafeterias and buffets, and snack and non-alcoholic beverage bars. The largest of these segments is limited service restaurants, which accounts for 78.7% of total industry revenue. These types of businesses include carry-out restaurants, delicatessens, fast food, pizza parlors and sandwich shops. The second largest segment is snack and non-alcoholic beverage bars, accounting for 13.1% of industry revenue. This segment includes stores such as bagel shops, coffee shops, doughnut shops and ice cream parlors. The smallest segment is cafeterias and buffets, accounting for 4% of total industry revenue. Franchised and multi-established operators currently account for 65% of total industry revenue. S.W.O.T. ANALYSIS Strengths Consistent historical and forecasted performance Large margins relative to industry due to the unique franchising strategy Experienced and proven management team Weaknesses Issues have been experienced establishing a presence in Latin America 5

6 Opportunities Emerging Markets represent a strong opportunity to create shareholder value Increased sales of high margin products such as smoothies and coffee could lead to higher margins Reducing Latin American presence will lead to an overall margin increase Threats Increasing health concerns in developed markets create the need to ay produce healthier products and more actively manage brand image PORTER S 5 FORCES ANALYSIS Supplier Power Supplier power is low in the industry and particularly low for McDonald s considering its refranchising strategy. Supplies are purchased around the world. Barriers to Entry Barriers to entry are extremely low globally. It is estimated the majority of fast food revenues are generated by small businesses. Buyer Power Buyer Power is fairly low in the industry, as no one franchise controls the majority of global sales. Threat of Substitutes Threat of Substitutes is high within the industry. Consumers can eat at home, or eat at sit down dining restaurants. Degree of Rivalry There is a high degree of rivalry within the industry. As previously stated, thousands of fast food operators exist. 6

7 COMPARABLES ANALYSIS EV/EBITDA, EV/Free Cash Flow and EV/Revenue were all used to find an implied value for McDonald s. EV/Revenue was weighted at only 5% due to the large difference in EBIDTA margins across otherwise comparable companies. This difference is a result of McDonalds franchising strategy, and does not affect comparability at the bottom line. EV/EBITDA and EV/Free Cash Flow are both good measures of how the market is pricing a mature company s earnings and were weighted at 47.5% each. Yum! Brands, Inc. (YUM), 35% Yum! Brands, Inc. operates an international fast food service company. The company develops, operates and franchises a number of fast food chains around the world. Its restaurants specialize in chicken, pizza, Mexican-style food, and seafood categories. It currently operates over 37,000 restaurants in over 100 countries under the names KFC, Pizza Hut, Taco Bell, Long John Silvers, and A&W All American Food. With a similar growth forecast and a somewhat higher beta than McDonald s, Yum! makes an excellent comparable for McDonald s. Starbucks Corp. (SBUX), 15% Starbucks Corporation engages in the purchase, roasting, and sale of whole bean coffees worldwide. It offers brewed coffees, teas and various other premium beverages. The company operates over 8,000 retail stores world-wide, and has had recent success similar to McDonald s in becoming more established within China. While it s premium products lead to a high beta of 1.33, it s growth forecast neutralizes this difference making SBUX a useful company for finding a target multiple. Chipotle Mexican Grill, Inc. (CMG), 15% Chipotle Mexican Grill, Inc. engages in the development and operation of fast-casual Mexican food restaurants within the United States and Canada. McDonald s owned a majority stake in CMG until 2006, when the company was divested. Chipotle is much smaller, with much higher growth expectations than McDonald s moving into the future making the company useful for calculating a multiple that represents McDonald s unique growth, cash flow and risk expectations. In addition, as a result of being operated by McDonald s, the company shares a similar business structure making it operationally very comparable. Coca-Cola Company (KO), 35% The Coca-Cola Company manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. It principally offers non-alcoholic sparkling and still beverages such as water, flavored water, soda, tea, sports drinks, fountain syrups and juices. Currently, Coca- Cola is pursuing similar initiatives to McDonald s, moving to establish its brands around the world. Its risk level and growth forecasts are relatively similar to McDonald s, making it an excellent comparable for use in finding an implied multiple. 7

8 DISCOUNTED CASH FLOW ANALYSIS Revenue The revenue model was built through forecasting the growth of MCD s four operating segments until Within the United States and Europe, growth is expected to stay at relatively low levels moving into the future. Meanwhile, APMEA is expected to be the main driver of growth for an extended period of time. Due to MCD s decision to no longer focus on Other & Corporate, those revenues will decrease as resources are spent in other areas of the globe. Cost of Goods Sold McDonald s management expects two factors to improve gross margin in the short term. First, the commodities basket cost is expected to decrease by 3-4% in 2010 and 1-2% in Second, as Other & Corporate becomes a smaller portion of revenue, its lack of profitability will stop being a lag on earnings. In the long run, increased labor and commodity costs in emerging markets are forecasted to drive up cost of revenue as a percent of sales. Depreciation Depreciation has historically been fairly constant as a percent of revenue, and was projected to only slightly increase moving into the future as the company invests a more than usual amount of money in store reimaging. Selling General & Administrative Expenses SG&A often fluctuates yearly based on variations in marketing campaigns and fixed costs. It increased as a percent of revenue in 2009 due to a decrease in total sales, and is forecasted to drop back to more normalized levels as sales growth returns. Interest, Taxes & Other Adjustments Other Income was forecasted as the average percent of revenue of historical years. Unusual expense was not forecasted, as a result of its inconsistent appearance on the income statement. After tax adjustments were also forecasted as an average of historical percentage of revenue. The effective tax rate was trended towards the weighted average marginal tax rate of countries MCD operates in, in order to be theoretically accurate. This trend has a marginal effect on the final DCF target price. Working Capital The company has given little indication that significant changes in its working capital will take place. As a result, Current Assets and Current Liabilities were generally projected as historical percentages of revenue. Current Portion of Long-Term Debt was projected by estimating when portions of long term financing come due for the short term, before bringing them back to historical levels as a percent of revenue. Capital Expenditures Capital Expenditures are expected to increase over the next year as the company continues its reimaging program, before trending towards depreciation levels in the terminal year. Terminal Growth Rate & Beta A Terminal growth rate of 2% was used due to a low Free Cash Flow growth rate near the end of the DCF Analysis. Beta was found using a 5 year regression, as no changes within the company have occurred over 5 years that would significantly change market sensitivity. 8

9 RECOMMENDATION McDonald s is the most well established fast food chain in the world, with an almost certain future of modest global growth. Qualitatively, it is one of the rare companies that deserves to be confidently viewed as a going concern. Translating this qualitative information into quantitative, McDonald s arrives at a target price of $95.05, or an undervaluation of 27%. In addition to the undervaluation, McDonald s global operations provide our portfolios with the opportunity to become increasingly globally diversified, reducing additional non-systemic risk. Unfortunately, due to a low beta, McDonald s does not fit the profile for aggressive growth in the DADCO portfolio. It does, however, align well with the Tall Firs and Svigals strategy. As a result, I am recommending a BUY for the Tall Firs and Svigals Portfolio s. Comparables Target DCF Target Target Price Current Price Undervaluation 21.49% 9

10 APPENDIX 1 COMPARABLES ANALYSIS The University of Oregon Investment Group 35.00% 15.00% 35.00% 15.00% ($ in millions, except per share data) MCD YUM SBUX KO CMG Stock Characteristics Avg. Current Price $74.92 $46.42 $25.69 $58.88 $ Day Moving Avg. $74.24 $44.28 $24.88 $57.26 $ Day Moving Avg. $70.42 $41.81 $25.48 $54.37 $ Beta Size ST Debt LT Debt , Cash and Cash Equiv Minority Interest Preferred Stock Diluted Share Count 1, , Market Cap 81,288 21,678 19, ,013 5,379 Enterprise Value 90,992 24,371 18, ,846 5,076 Profitability Margins Gross Margin 51% 39% 50.30% 52.30% 64.70% 50.80% EBIT Margin 17% 30% 12.60% 9.30% 27% 8.20% EBITDA Margin 22% 35% 17.70% 15% 30.90% 12.50% Net Margin 12% 20% 8.70% 6.10% 20.90% 5.50% Credit Metrics Interest Expense (MRQ) Debt/Equity (MRQ) Debt/EBITDA (LTM) Operating Results Revenue (LTM) 23,576 11,062 10,291 31,718 1,652 Gross Profit (LTM) 12,999 6,406 5,585 20,640 1,085 EBITDA (LTM) 8,447 2,348 1,799 10, Free Cash Flow (LTM) 3, , Valuation EV/Revenue 3.02 x 3.86 x 2.20 x 1.77 x 4.35 x 3.07 x EV/EBITDA x x x x x x EV/Free Cash Flow x x x x x x Metric Implied Price Weight EV/Revenue % EV/EBITDA % EV/Free Cash Flow % Price Target Current Price Under (Over) Valued 19.71% 10

11 APPENDIX 2 DISCOUNTED CASH FLOWS ANALYSIS The University of Oregon Investment Group ($ in millions, except per share data) Q Q34 E 2010 A+E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E Total Company Revenue 23,129 23,522 22,745 11,556 11,964 23,519 24,505 25,739 27,062 28,236 29,492 30,775 32,002 33,151 % Y/Y Growth 1.70% -3.31% 3.41% 4.19% 5.04% 5.14% 4.34% 4.45% 4.35% 3.99% 3.59% Cost of Revenue 13,992 13,953 12,737 6,370 6,566 12,936 13,232 14,028 14,884 15,812 16,810 17,849 18,721 19,559 % Revenue 60.50% 59.32% 56.00% 55.12% 55.00% 54.00% 54.50% 55.00% 56.00% 57.00% 58.00% 58.50% 59.00% Depreciation 1,214 1,208 1, ,305 1,372 1,403 1,475 1,539 1,607 1,677 1,744 1,807 % Revenue 5.25% 5.13% 5.35% 5.45% 5.55% 5.60% 5.45% 5.45% 5.45% 5.45% 5.45% 5.45% 5.45% Gross Profit 7,923 8,361 8,792 4,556 4,722 9,278 9,900 10,309 10,703 10,885 11,074 11,248 11,537 11,785 Gross Margin 34% 36% 39% 39% 39% 39% 40% 40% 40% 39% 38% 37% 36% 36% Operating Expenses SG&A 2,326 2,078 2,130 1,030 1,087 2,117 2,181 2,265 2,381 2,485 2,595 2,708 2,816 2,917 % Revenue 10.06% 8.83% 9.36% 8.91% 9.00% 8.90% 8.80% 8.80% 8.80% 8.80% 8.80% 8.80% 8.80% EBIT 5,597 6,284 6,662 3,527 3,635 7,162 7,719 8,044 8,321 8,400 8,479 8,540 8,720 8,868 % Revenue 24.20% 26.71% 29.29% 30.52% 30.45% 31.50% 31.25% 30.75% 29.75% 28.75% 27.75% 27.25% 26.75% Other (Expense) Income % Revenue -0.31% 1.22% 0.09% -0.71% 0.15% 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% Interest Expense % Revenue 1.77% 2.22% 2.08% 1.90% 2.03% 2.03% 2.03% 2.03% 2.03% 2.03% 2.03% 2.03% 2.03% Unusual Expense 1, Pre-tax Income 3,445 6,047 6,319 3,211 3,496 6,706 7,304 7,607 7,863 7,921 7,979 8,018 8,178 8,306 % Revenue 14.89% 25.71% 27.78% 27.78% 28.51% 29.80% 29.55% 29.05% 28.05% 27.05% 26.05% 25.55% 25.05% Less Taxes (Benefit) 1,237 1,845 1, ,069 2,045 2,228 2,320 2,398 2,416 2,473 2,566 2,699 2,741 Tax Rate 35.91% 30.51% 30.64% 30.42% 30.50% 30.50% 30.50% 30.50% 30.50% 31.00% 32.00% 33.00% 33.00% After-tax Adjustments - Net % Revenue 0.50% 0.47% 0.74% 0.71% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Net Income 2,323 4,313 4,551 2,316 2,463 4,778 5,198 5,416 5,600 5,647 5,653 5,606 5,639 5,731 Net Margin 10.05% 18.34% 20.01% 20.04% 20.32% 21.21% 21.04% 20.69% 20.00% 19.17% 18.22% 17.62% 17.29% Add Back Depreciation and Ammortization 1,214 1,208 1, ,305 1,372 1,403 1,475 1,539 1,607 1,677 1,744 1,807 Add Back Interest Expense*(1-Tax Rate) Operating Cash Flow 3, , , , % Revenue 16.43% 25.02% 26.80% 26.80% 27.27% 28.22% 27.90% 27.55% 26.86% 26.02% 25.04% 24.43% 24.09% Current Assets 3,582 3,518 3,416 3,167 3,528 3,528 3,676 3,861 4,059 4,235 4,424 4,616 4,800 4,973 % Revenue 15.49% 14.95% 15.02% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% Current Liabilities 4,499 2,538 2,989 2,583 3,038 3,038 3,511 3,317 2,804 3,750 3,524 4,238 4,371 4,025 % Revenue 19.45% 10.79% 13.14% 12.92% 14.33% 12.89% 10.36% 13.28% 11.95% 13.77% 13.66% 12.14% Net Working Capital , Change in Net Working Capital 1, Capital Expenditures 1,947 2,136 1, ,604 2,400 2,450 2,445 2,436 2,259 2,359 2,462 2,560 2,652 % Revenue 8.42% 9.08% 8.58% 6.89% 10.20% 10.00% 9.50% 9.00% 8.00% 8.00% 8.00% 8.00% 8.00% Unlevered Free Cash Flow 1,854 1,852 4,695 2,145 1,886 4,015 4,791 4,356 4,309 6,094 4,899 5,767 5,207 4,817 Discounted Unlevered Free Cash Flows 1,833 4,401 3,781 3,534 4,723 3,588 3,991 3,405 2,976 11

12 APPENDIX 3 DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS Assumptions for Discounted Free Cash Flows Model Tax Rate 33% Terminal Growth Rate 2% Risk-Free Rate 2.55% Terminal Value Beta 0.54 PV of Terminal Value Market Risk Premium 7% Sum of PV Free Cash Flows % Equity 87.73% Firm Value % Debt 12.27% LT Debt 11,350 Cost of Debt 3.50% Cash 1665 CAPM 6.31% Equity Value WACC 5.83% Diluted Share Count 1,085 Implied Price Current Price Under (Over) Valued 23.28% APPENDIX 4 BETA SENSITIVITY ANALYSIS APPENDIX 5 REVENUE MODEL Beta St. Deviation Implied Price Under (Over) Valued % % % % % % % % % The University of Oregon Investment Group ($ in millions, except per share data) Q Q34E 2010 A+E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E U.S. 7,906 8,078 7,944 3,953 4,229 8,182 8,407 8,618 8,811 8,988 9,167 9,351 9,538 9,729 % Growth 2.18% -1.66% 3.00% 2.75% 2.50% 2.25% 2.00% 2.00% 2.00% 2.00% 2.00% Europe 8,926 9,923 9,274 4,571 5,074 9,645 10,079 10,583 11,112 11,612 12,135 12,620 13,062 13,454 % Growth 11.17% -6.54% 4.00% 4.50% 5.00% 5.00% 4.50% 4.50% 4.00% 3.50% 3.00% APMEA 3,599 4,231 4,337 2,402 2,195 4,597 5,011 5,612 6,286 6,851 7,468 8,140 8,791 9,407 % Growth 17.56% 2.51% 6.00% 9.00% 12.00% 12.00% 9.00% 9.00% 9.00% 8.00% 7.00% Corporate & Other 2,356 1,290 1, ,095 1, % Growth % -7.75% -8.00% -8.00% -8.00% -8.00% -8.00% -8.00% -8.00% -8.00% -8.00% Total 22,787 23,522 22,745 11,554 11,965 23,519 24,505 25,739 27,062 28,236 29,492 30,775 32,002 33,151 % Growth 3.23% -3.30% 3.40% 4.19% 5.04% 5.14% 4.34% 4.45% 4.35% 3.99% 3.59% 12

13 APPENDIX 6 WORKING CAPITAL MODEL The University of Oregon Investment Group ($ in millions, except per share data) Q Q A & E Net Revenues 23, , , , , , , , , , , , , , Current Assets Cash and Cash Equivalents % of Revenues 8.57% 8.77% 7.90% 14.41% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% A/R % of Revenues 4.56% 3.96% 4.66% 8.34% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% Prepaid Expenses and Other Current Assets % of Revenues 1.82% 1.75% 1.99% 3.83% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% Inventories at cost % of Revenues 0.54% 0.47% 0.47% 0.82% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Total Current Assets % of Revenues 15.49% 14.95% 15.02% 27.40% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% Current Liabilities A/P % of Revenues 2.70% 2.64% 2.80% 5.00% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% 2.70% Income Taxes % of Revenues 0.00% 0.00% 0.89% 0.23% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% Other Taxes % of Revenues 1.07% 1.07% 1.22% 2.13% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% Accrued Interest % of Revenues 0.64% 0.74% 0.66% 1.69% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% Accrued Payroll and Other Liabilities % of Revenues 6.43% 6.20% 5.48% 14.36% 5.48% 5.48% 5.48% 5.48% 5.48% 5.48% 5.48% 5.48% 5.48% Current Portion of Long-Term Debt % of Revenues 3.74% 0.14% 1.47% 0.16% 2.56% 3.97% 2.53% 1.78% 1.78% 1.78% 1.78% 1.78% 1.78% Notes Payable Total Current Liabilities % of Revenues 19.45% 10.79% 11.63% 23.34% 12.92% 14.33% 12.89% 10.36% 13.28% 11.95% 13.77% 13.66% 12.14% APPENDIX 7 EBITDA GROWTH ESTIMATES EBITDA Growth Estimates MCD 7.47% 7.37% 3.91% YUM 10.90% 9.60% 8.60% SBUX 33.70% 12.50% 8.30% KO 12.90% 9.90% 8.00% CMG 24.60% 19.00% 15.80% APPENDIX 8 - SOURCES Fact Set IBISworld.com Etrade.com Fidelity.com 13