#1SQUARE PERSHING A Value Menu for McDonald's Pershing Square Capital Management#2DISCLAIMER Pershing Square Capital Management's ("Pershing") analysis and conclusions regarding McDonald's Corporation ("McDonald's") are based on publicly available information. Pershing recognizes that there may be confidential information in the possession of the Company and its advisors that could lead them to disagree with the approach Pershing is advocating. The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Pershing concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Pershing manages funds that are in the business of trading - buying and selling - public securities. It is possible that there will be developments in the future that cause Pershing to change its position regarding the Company and possibly reduce, dispose of, or change the form of its investment in the Company. Pershing recognizes that the Company has a stock market capitalization of approximately $42bn, and that, accordingly it could be more difficult to exert influence over its Board than has been the case with smaller companies. 1#3Table of Contents I. II. III. IV. V. Overview of McDonald's Pershing's View of McDonald's Pershing's Proposal to McDonald's: McOpCo IPO Company Response to Pershing Developing a Response to the Company Appendix A. Pershing's Proposal: Assumptions B. PF McDonald's Financial Analysis C. McOpCo Financial Analysis 3 7888 ~ = w 11 23 39 43 58 59 66 74#4I. Overview of McDonald's#5I. Overview of McDonald's gesun Pershing's Involvement with McDonald's On September 22nd, Pershing Square Capital Management ("Pershing") presented a proposal for increasing shareholder value ("the Proposal") to McDonald's management Pershing commends McDonald's management for its strong operational execution over the past two years Pershing appreciates the willingness and openness of McDonald's management to discuss the Proposal Management has taken our Proposal seriously - our Proposal was presented to McDonald's Board of Directors Pershing had a follow-up meeting with McDonald's management on October 31 when the Company communicated its response to our Proposal Pershing is pleased to have the opportunity to share the details of our Proposal with the broader investment community 4#6I. Overview of McDonald's Mod n McDonald's Review of McDonald's World's largest foodservice franchisor and retailer $42 billion equity market value $55 billion in estimated system wide sales ► 32,000 system wide restaurants, globally Serves 50 million customers daily in 119 countries Everyday 1 out of 14 Americans eats at a McDonald's One of the world's most recognized brands ► Consistently named in the top 10 global brands along with Coke and Disney One of the largest retail property owners in the world Estimated owned and controlled real estate market value of $46 billion (¹) ► Estimated 18,000 restaurants where McDonald's owns land and/or building Significant free cash flow business (1) Based on Pershing's assumptions. See page 64 in the appendix. 5#7I. Overview of McDonald's Following declines in same-store sales and profitability in 2001 and 2002, Management has improved operations through product innovation, capital discipline and strong execution. As a result, the Company's profitability has increased. McDonald's Historical Revenue and EBITDA Performance (1) ($ in millions) $20,000 Revenue / EBITDA $15,000 $10,000 $5,000 Same-store Sales Growth $0 $14,243 $4,144 Historical Financial Performance 2000 0.6% $14,870 $4,041 2001 (1.3%) EBITDA (1) EBITDA is adjusted for certain non-recurring and non-cash items. $15,406 $3,997 2002 (2.1%) Revenue 6 $17,141 $4,512 2003 2.4% EBITDA Margin $19,065 $5,183 2004 6.9% 30.0% 28.5% 27.0% 25.5% 24.0% EBITDA Margin#8I. Overview of McDonald's (1) As a result of the Company's improved capital allocation, pre-tax unlevered free cash flow has increased from a five-year low of $2.0 billion in 2002 to $3.5 billion in 2004. EBITDA - CapEx Historical Pre-Tax Unlevered Free Cash Flow(1) Performance ($ in millions) $4,000 $3,000 $2,000 $1,000 $0 $2,199 Historical Financial Performance (Cont'd) 15.4% 2000 $2,134 14.4% 2001 EBITDA - CapEx $1,994 12.9% 2002 $3,205 7 18.7% Denotes Adjusted EBITDA - CapEx. Adjusted EBITDA is adjusted for certain non-recurring and non-cash expenses. 2003 Margin % $3,483 18.3% 2004 26% 22% 18% 14% 10% Margin (%)#9I. Overview of McDonald's Although McDonald's stock has rebounded from its 2003 lows, it has been range bound in the low $30s for the past five years and is significantly off of its high of $48 per share reached in 1999. McDonald's Stock Price Performance ($ per share) $50.00 $40.00 $30.00 $20.00 $10.00 11/12/99 Stock Price Performance 07/12/00 03/12/01 11/10/01 07/11/02 8 03/11/03 11/09/03 07/09/04 High of $48.32 11/12/99 03/09/05 11/07/05#10I. Over the past five years, McDonald's has only slightly outperformed the S&P 500 while its QSR peer group has vastly outperformed the index. 350 5-Year Indexed Stock Performance 300 250 200 150 Overview of McDonald's 100 50 0 11/10/00 06/01/01 5-Year Indexed Stock Performance (1) Includes YUM and WEN. 12/21/01 07/12/02 5 Year Indexed Performance 01/31/03 McDonald's 9 08/22/03 QSR Comp (1) McDonald's 2.4% 03/12/04 S&P 500 10/01/04 S&P 500 (9.6%) 04/22/05 QSR Index 177.3% QSR MCD S&P 11/11/05#11(1) I. Overview of McDonald's Despite McDonald's strong real estate assets, number one QSR market position and leading brand, McDonald's trades at a discount to its peers. We believe this discount is due to a fundamental misconception about McDonald's business. McDonald's versus its Peers EV / '06E EBITDA 10.0x 9.5x 9.0x 8.5x 8.0x 7.5x P/ '06E EPS 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Long-Term EPS Growth 30-Day Average Trailing M 8.7x McDonald's stock price is based on a 30-day average trailing price as of 11/11/05. McDonald's 15.6x 30-Day Average Trailing McDonald's 9% 10 (1) (1) I I I I I I I I I I I I I I I I I T 9.3x WENDY'S 20.4x WENDY'S 12% 8.9x Yum! 16.7x Yum! 12%#12II. Pershing's View of McDonald's#13(1) II. Pershing's View of McDonald's McDonald's McDonald's: How the System Works... Landlord, Franchisor, Restaurant Operator ▶ Franchisor: Franchises brand and collects fee Operator: Operates 9,000 McDonald's restaurants Landlord: Buys and develops real estate and leases to its franchisees Real Estate and Franchise estimated pre-tax ROI of 17.5%(¹): Cost of Land Cost of Building Total Cost Est. Average Unit Sales Rent as a % of Sales Franchise Income as % of sales Rental Income Franchise Income Total Income Unlevered Pre Tax ROIC $650k 650k $1,300k $1,750k 9.0% 4.0% $158 70 $228 17.5% Illustrative return based on Pershing's assumptions for the cost of land and building and approximate average unit sales in 2004. 12 Franchisees Franchise Fee: 4% of restaurant sales Rent: greater of a minimum rent or a percentage of restaurant sales (current avg. -9% of sales) Franchisee bears all maintenance capital costs#14(1) (2) II. Pershing's View of McDonald's Landlord Real Estate and Franchise Business McDonald's controls substantially all of its systemwide real estate Estimated 11,700 restaurants where McDonald's owns both the land and buildings and 7,000 restaurants where McDonald's owns only the buildings (1) Estimated $1.3 billion of income A Landlord, Franchisor and Restaurant Operator generated from subleases Estimated real estate value: $46 billion or -94% of current Enterprise Value (2) McDonald's Franchisor Approximately 32,000 restaurants where McDonald's receives 4% of unit sales McOpCo 13 Restaurant Operator Approximately 9,000 Company- operated restaurants Reported financials have overstated margins due to a lack of transfer pricing Currently not charged a franchise fee ■ Currently not charged a market rent Assumes that McDonald's owns the land and buildings of 37% of its system wide units and owns the buildings of 22% of its system wide units. Valuation based on Pershing estimates. See page 64 for more detail on real estate valuation.#15II. Pershing's View of McDonald's Maintenance Capital Requirements: Risk Profile Typical EBITDA Margin: Typical average cost of capital:(2) Minimal Landlord Characteristics of Cash Flow Streams Real Estate and Franchise Business Triple net leases Very Stable / Minimal Risk Generates the greater of a minimum rent or a % of sales (current average ~ 9%) 70%-90% Margins Some real estate development expenses Minimal: 5.75%-6.5% Real estate holding companies typical asset beta: ~.40 ►Hard asset collateral Low Add n Franchisor Stable / Low Risk McDonald's Limited remodel subsidies as well as corporate capex Low operating leverage Diverse and global customer base 30%-50% Margins Low: 6.5%-7.5% ►Choice Hotels, Coke and Pepsi - typical asset beta: ~.50-.60 Highly leveragable High McOpCo Restaurants Significant maintenance capex Medium Risk High operating leverage Sensitivity to food costs 7%-10% Margins (¹) High food, paper and labor costs Rent Franchise fee Medium: 8%-9% ►Mature QSR typical asset beta: ~.80-.90 (1) Typical margins are illustrative restaurant EBITDA margins and assume the payment of a market rent and franchisee fee, similar to a franchisee. (2) Typical betas are Pershing approximations based on selected companies' Barra predictive betas. Average cost of capital estimates are illustrative estimates based on average asset betas. 14#16II. Pershing's View of McDonald's In 2004, McDonald's company-operated restaurants appeared to contribute 46% of total EBITDA. However, once adjusted for a franchise fee and a market rent fee, McOpCo constituted only 22% of total EBITDA, with the higher multiple Real Estate and Franchise businesses contributing 78% of total EBITDA. 2004 Total EBITDA As Reported 54% Real Estate and Franchise McOpCo Real Estate and Franchise Total 46% Adjusting for Market Rent and Franchise Fees 2004 EBITDA $2.4bn 2.8bn $5.2bn McOpCo 46% 54% 100% 2004 Total EBITDA Adjusted for Market Rent and Franchise Fees 78% Real Estate and Franchise McOpCo Real Estate and Franchise Total 22% McOpCo 2004 EBITDA $1.1bn 4.0bn $5.2bn 22% 78% 100% Note: The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonald's management has indicated this is a conservative assumption regarding the Real Estate and Franchise business. Analysis excludes $441 mm of non-recurring other net operating expenses. 15#17II. Pershing's View of McDonald's Once adjusted for market rent and franchise fees, McOpCo would be contributing only 14% of total EBITDA-Maintenance Capex, with the Real Estate and Franchise business contributing 86% of total EBITDA-Maintenance Capex ,based on FY 2005E projections. 2005E Total EBITDA - Capex As Reported Real Estate and Franchise 53% Adjusting for Market Rent and Franchise Fees (Cont'd) McOpCo PF McDonald's Total '05 EBITDA- Maint. Capex $1.9bn 2.2bn $4.1bn McOpCo 47% % 47% 53% 100% 2005E Total EBITDA - Capex Adjusted for Market Rent and Franchise Fees 16 Real Estate and Franchise 86% McOpCo PF McDonald's Total McOpCo 14% '05 EBITDA- Maint. Capex $0.6bn 3.5bn $4.1bn % 14% 86% 100% The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonald's management has indicated this is a conservative assumption regarding the real estate and franchise business. In addition, we note that 2005E maintenance capex includes certain one-time capital expenditures related to systemwide remodeling program. Please see appendix for full reconciliation#18II. Pershing's View of McDonald's Set forth below is a table which reconciles McOpCo's, the Real Estate and Franchise businesses' and stand-alone McDonald's FY 2004A income statements, assuming McOpCo pays a market rent and franchise fee. The analysis demonstrates that the Real Estate and Franchise business contributed approximately 78% of total EBITDA. (U.S. $ in millions) Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Rent From Company Operated Rest. Franchise Fees From Franchise and Affiliate Rest. Franchise Fees From Company Operated Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Non-Rent Occupancy and Other Expenses (excl. D&A) Company Operated D&A Company-Operated Rent Expense Additional Rent Payable to PropCo Franchise Fee Payable to FranCo Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Reconciling McDonald's 2004A P&L Depreciation & Amortization EBITDA % of Total EBITDA 2004 Income Statement $14,224 3,336 1,505 $19,065 4,853 3,726 2,164 774 583 $12,100 576 427 1,980 3,982 1,201 $5,183 100% Real Estate McOpCo and Franchise P&L P&L $14,224 $14,224 4,853 3,726 2,164 427 583 697 569 $13,019 ' 495 710 427 $1,137 22% 3,336 1,280 1,505 569 $6,690 347 583 $930 576 427 1,485 3,272 774 $4,046 78% Inter-Company Eliminations (1,280) (569) ($1,849) (583) (697) (569) ($1,849) $0 2004 Consolidated Sum of Parts $14,224 3,336 1,505 $19,065 4,853 3,726 2,164 774 583 $12,100 576 427 1,980 3,982 1,201 $5,183 100% The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. McDonald's management has indicated this is a conservative assumption regarding the real estate and franchise business. Note: Analysis excludes $441 mm of non-recurring other net operating expenses. 17 ↑↑#19II. Pershing's View of McDonald's Assuming 75% of G&A is allocated to the Real Estate and Franchise business, an allocation that McDonald's management indicates is conservative, we indicate below the EBITDA for McOpCo and the Real Estate and Franchise businesses, as depicted in the reported financials. We note that McOpCo has historically appeared to contribute approximately ~45% of consolidated EBITDA. McDonald's Consolidated EBITDA ($ in millions) $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 $4,144 $1,995 $2,149 Historical EBITDA by Business Type: As Currently Reported 2000 $4,041 $1,893 $2,148 2001 $3,997 $1,841 $2,156 2002 Real Estate and Franchise McOpCo $4,512 18 $2,072 $2,440 2003 $5,183 $2,403 $2,780 2004 McOpCo ~45% Real Estate and Franchise ~55% Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Management has indicated this is a conservative assumption regarding the Real Estate and Franchise business.#20II. Pershing's View of McDonald's Despite an economic recession in 2001-2003, significant dips in McDonald's system wide same- store sales growth and declines in McDonald's stock prices, the Real Estate and Franchise business has grown every year over the last five years. McDonald's Consolidated EBITDA ($ in millions) $6.000 $5.000 $4.000 $3.000 $2.000 $1.000 $0.000 Same- store sales McOpCo Growth Real Estate and Franchise McOpCo $4,144 $1,006 $3,138 2000 0.6% Historical EBITDA by Business Type: Adjusted for a Market Rent and Franchise Fee (1.1%) RE/Franchise Growth (0.5)% $4,041 $900 $3,142 2001 (1.3%) (10.6%) 0.1% $3,997 $828 $3,169 2002 (2.1%) (7.9%) 0.9% 19 Notes: Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales. $4,512 $944 $3,568 2003 2.4% 14.0% 12.6% $5,183 $1,137 $4,046 2004 6.9% 20.4% 13.4% Real Estate and Franchise ~80%#21II. Pershing's View of McDonald's McDonald's Consolidated EBITDA ($ in billions) McOpCo EBITDA Growth $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 Real Estate & Franchise EBITDA Growth: Change in Year-End Stock Price: 1990 (15.6%) Based on Pershing Assumptions $0.6 $0.6 $0.5 $0.5 $1.5 $1.6 $1.8 $1.9 $2.1 2.3% Real Estate and Franchise Business: Stable and Growing $0.7 4.9% 11.7% 8.5% $0.7 1991 1992 1993 1994 1995 $0.8 $0.8 $2.5 $2.6 $2.7 $2.9 1996 18.1% (2.2%) 17.0% 14.1% 3.6% $1.0 10.4% 15.3% 4.0% 4.3% $1.0 20 6.3% 18.0% 5.1% Notes: Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales. 10.1% 7.4% 30.5% 28.3% 16.9% 2.6% 54.3% 0.6% 5.2% 60.9% 5.0% $1.0 $3.2 $3.1 $3.1 $3.2 Based on Reported Financials $0.9 $0.8 1997 1998 1999 2000 2001 2002 2003 2004 (1.1%) (10.6%) (7.9%) 14.0% 20.4% $0.9 (0.5%) 0.1% $3.6 $1.1 $4.0 (15.7%) (22.1%) (39.3%) 54.4% 0.9% 12.6% 13.4% 29.1% McOpCo Real Estate and Franchise#22II. Pershing's View of McDonald's McDonald's (1) From Grinding It Out: The Making of McDonald's, p. 108. (2) From McDonald's: Behind the Golden Arches, pgs. 288 - 291. Historical Perspectives on McOpCo McDonald's did not historically operate restaurants The Company initially entered the business of operating restaurants only as a defensive measure Limited number of restaurants "The idea emerged that we should operate a base of ten or so stores as a company. This would give us a firm base of income in the event the McDonald brothers claimed default on our contract...” (1) --Ray Kroc / Founder Expansion of McOpCo units first occurred in the late 1960s Veteran franchisees were approaching retirement and needed liquidity McDonald's stock was provided as a tax-free exchange for the restaurants "Some of our operators had tremendous wealth but no money. And we were using McDonald's stock that was trading at 25 times earnings to buy restaurants for seven times earnings” --Fred Turner / Former President and CEO Turner realized in the mid 70s that owning too many McOpCo units was not in the best interest of the Company 21#23II. Pershing's View of McDonald's "Running a McDonald's is a 363-day-a-year business and an owner/operator, with his personal interests and incentives, can inherently do a better job than a chain manager." (1) Structure Illustrative Characteristics of Company Operated versus Franchisee Operated Restaurants (2) Taxes Leverage Superior Franchisee Economics Levered Returns General manager --Fred Turner / Former President and CEO Company Operated C-Corporation Corporate level tax 10% - 30% Low teens Salaried employee/ corporate manager (1) From McDonald's: Behind the Golden Arches, pgs. 288 - 291. (2) Illustrative leverage and equity return figures. Not based on company data. 22 Franchisee Operated LLC / Partnership No corporate level tax 75% - 90% 40% and higher Owner / Entrepreneur#24III. Pershing's Proposal to McDonald's: McOpCo IPO#25III. Pershing's Proposal to McDonald's: McOpCo IPO Pershing's Proposal: McOpCo IPO Step 1: IPO of 65% McOpCo ►IPO 65% of McOpCo ► IPO generates estimated $3.27bn of after tax proceeds ■ Assumes a 7x EV/FY'06E EBITDA multiple ■ Assumes $1.35 bn of Net Debt allocated to McOpCo 24 Step 2: Issue Debt and Pursue Leveraged Self Tender ► Issue $14.7bn of financing secured against PF McDonald's real estate Debt financing and IPO proceeds used to Refinance all of the existing $5 bn of net debt at Pro Forma McDonald's ■ Repurchase 316mm shares at $40 per share Pay $300mm in fees and transaction costs#26III. Pershing's Proposal to McDonald's: McOpCo IPO M McDonald's IPO 65% Pershing's Proposal: McOpCo IPO (cont'd) McOpCo At the time of IPO, McOpCo signs market lease and franchise agreements with Pro Forma McDonald's ("PF McDonald's") 25 Pro Forma n McDonald's FranCo PropCo Resulting Pro Forma McDonald's is a world-class real estate and franchise business ■ McOpCo financials deconsolidated from PF McDonald's ► Leverage is placed only on PropCo ▸ FranCo is unlevered, maximizing its credit rating#27III. Pershing's Proposal to McDonald's: McOpCo IPO An IPO of McOpCo would have several positive strategic and financial implications for both Pro Forma McDonald's as well as McOpCo. (1) Based on recent stock price of $33 per share. McOpCo IPO: A Transformational Transaction Significant value creation for shareholders PF McDonald's would trade at an approximate 37%-52% premium over where it trades today, in the range of approximately $45-50 per share (¹) Creates investor transparency ▸ Deconsolidation provides investors with transparent insight into PF McDonald's profitability (60% EBITDA margins), attractive FCF profile (35% levered FCF margins) and world-class real estate/franchise assets ► Separation of McOpCo highlights the significant value of rental income and franchise fees currently eliminated in consolidation Enhances management focus and incentives at both entities ► Enhances ability to attract and retain top McOpCo management Allows PF McDonald's management team to focus on new product innovation, improved marketing efforts, stronger real estate development programs and higher quality franchisee performance monitoring / training 26#28III. Pershing's Proposal to McDonald's: McOpCo IPO Improves operating and financial metrics at every level Significantly improves PF McDonald's EBITDA and free cash flow margins Enhances return on capital and overall capital allocation for the PF McDonald's ► Improves ability of PF McDonald's to pay significant ongoing dividends $ in millions Revenue EBITDA EBITDA Margin EBITDA-Capex EBITDA-Capex Margin EBITDA-Maintenance Capex EBITDA - Maint. Capex Margin FCF (1) A Transformational Transaction (Cont'd) FCF Margin McDonald's Standalone FY 2006E $20,816 5,594 26.9% 4,335 20.8% 4,651 22.3% 3,059 14.7% We note that CapEx projections are net of proceeds obtained from store closures. (1) Typical QSR margin based on Wall Street estimates for YUM! Brands and Wendy's. 27 M McDonald's Pro Forma FY 2006E $7,393 4,464 60.4% 3,739 50.6% 4,025 54.4% 2,440 33.0% Typical Mature QSR 15% - 20% ¡7.5% -12.5% 10%-15% 5% - 10%#29III. Pershing's Proposal to McDonald's: McOpCo IPO An IPO of McOpCo would have several positive strategic and financial implications for both Pro Forma McDonald's as well as McOpCo. (1) Will be discussed at length later in the presentation. A Transformational Transaction (Cont'd) Will likely lead to improved operating margins at McOpCo Separation from PF McDonald's will make margin improvement an imperative Improves capital structure while maintaining investment grade credit rating ► Low-cost secured debt to replace current debt or issued incrementally on current structure ■ Cheap CMBS structured financing issued at PropCo could judiciously utilize strong real estate collateral CMBS financing is non-recourse to McDonald's (parent) FranCo remains unlevered and is at least a AA credit PF McDonald's, the holding company, remains investment grade Improves alignment with franchisees (1) Allows for share buybacks of higher return business ► Separation of McOpCo allows for share buybacks to be targeted predominantly at PF McDonald's, the stronger free cash flow business 28#30III. Pershing's Proposal to McDonald's: McOpCo IPO An IPO of McOpCo would have several positive strategic and financial implications for both McDonald's as well as McOpCo. A Transformational Transaction (Cont'd) Allows for a voice in McOpCo through governance Given its 35% stake in McOpCo post spin-off, PF McDonald's will be able to elect several Board seats to the new entity Governance affords visibility in McOpCo operations, which will help in: managing the McDonald's brand extending new products through the franchisee system remaining in touch with unit-level economics and issues Supported by highly similar, successful precedent transactions ► Coca Cola Company carved-out its owned bottling operations in 1986 in what is widely viewed as one of the most successful restructurings of all time PepsiCo followed suit in a similar transaction in 1999, with unanimous support from the Wall Street research analyst community Allows for an accelerated McOpCo refranchising program Increases overall size of PF McDonald's investor base Strong potential to attract both dividend / income-focused investors and real estate-focused investors 29#31III. Pershing's Proposal to McDonald's: McOpCo IPO PF McDonald's operating metrics are much closer to a typical Real Estate C-Corporation or a high branded intellectual property business such as PepsiCo or Coca-Cola than they are a typical mature QSR. 2005E Operating Metrics: EBITDA Margins EBITDA - CapEx Margins EPS Growth Trading Multiples Adjusted Enterprise Value (²)/ CY 2006E EBITDA CY 2006E EBITDA - CapEx Price / CY 2006E EPS CY 2006E FCF (3) Leverage Multiples Net Debt / EBITDA Total Debt / Enterprise Value Publicly Traded Comparable Companies Pro Forma McDonald's 60% 50% 9% Stock prices as of 11/11/05. Projections based on Wall Street estimates. (1) Typical mature QSR based on YUM! Brands and Wendy's. (2) Adjusted for unconsolidated assets. (3) FCF denotes Net Income plus D&A less CapEx. Typical Mature QSR (1) ~15% - 20% ~7.5% -12.5% ~10% -12% ~8.5x - 9.5x ~12x - 15x ~15x - 19x ~16x - 20x ~0.5x - 1.8x ~7.5% - 20% 30 Typical Real Estate C-Corp ~70% - 80% ~65% -75% ΝΑ ~13x - 16x ~17x - 20x ΝΑ ~20x - 25x ~5x - 10x ~35% - 60% High Branded Intangible Property Choice Hotels PEPSICO Coca-Cola 66% 61% 16% 15.1x 16.0x 24.3x 24.0x 1.7x 11% SYS 23% 18% 11% 12.3x 15.5x 20.1x 20.8x 0.0x 4% 31% 27% 9% 12.6x 14.2x 18.8x 18.9x NM 4%#32III. Pershing's Proposal to McDonald's: McOpCo IPO We believe REITs trade in the range of 13x-17x EV/06E EBITDA, depending on the type of real estate and the businesses the properties support. Company Health Care Industrial Multifamily Office Regional Mall Self Storage Strip Center Triple Net Lease REITS: Typical Trading Multiples REIT Industry Total / Wtd. Avg. EV / '06E EBITDA 14.7x 16.3x 17.0x 15.2x 16.3x 17.5x 15.5x 13.1x 15.7x Based on Wall Street research estimates at the time of Pershing's initial Proposal to the Company. 31 Div. Yield 6.3% 4.2% 4.8% 4.7% 3.8% 3.8% 4.5% 6.4% 4.8% P / '06E FFO 12.6x 13.9x 16.6x 13.8x 14.2x 16.7x 14.4x 12.8x 14.4x P / '06E AFFO 13.3x 17.2x 19.4x 19.6x 16.9x 18.3x 16.5x 13.4x 16.8x#33III. Pershing's Proposal to McDonald's: McOpCo IPO Based on relevant publicly traded comparable companies, including several real estate holding C- Corporations, Pro Forma McDonald's would trade in the range of 12.5x- 13.5x EV/CY '06E EBITDA. We believe PF McDonald's would trade at a 37%-52% premium over where it trades today. (1) Significant Value Creation for Shareholders $ in millions EV/06E EBITDA Multiple Range Enterprise Value Less: Net Debt (12/31/05E) (1) Plus: Remaining Stake in McOpCo Equity Value Ending Shares Outstanding (12/31/05E) Price Per Share Premium to recent price (2) Implied P/FY 2006 EPS Multiple Implied P/FY 2006 FCF Multiple (5) Implied FCF / Dividend Yield (3) 32 Low 12.5x $55,799 14,650 2,097 $43,247 957.3 $45 36.9% 19.9x 19.8x 5.1% High 13.5x $60,263 14,650 Assumes $1.35 bn of net debt allocated to McOpCo and $5.0 bn of net debt allocated to PF McDonald's. In addition, assumes $9.7 bn of incremental leverage placed on PF McDonald's. 2,493 $48,106 957.3 $50 52.3% 22.2x 21.9x 4.6% (2) Represents 35% of the market equity value of McOpCo. (3) (4) Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and expenses) are used to buy back approximately 316 mm shares at an average price of $40. Assumes a recent stock price of $33. (5) P/FY '06E FCF multiple adjusted for Pro Forma McDonald's 35% stake in McOpCo.#34(1) III. Pershing's Proposal to McDonald's: McOpCo IPO McOpCo would likely be valued at $6.0 billion to $7.1 billion of equity market value or 6.5x-7.5x EV/'06E EBITDA. McOpCo Valuation Summary and Potential IPO Proceeds $ in millions McOpCo Financial Summary Company operated revenues Segment EBITDA, pre G&A EBITDA Margin, pre G&A Assumed G&A for McOpCo Assumed G&A as a Percentage of Total G&A EBITDA post G&A EBITDA Margins Net Income EPS McOpCo Financial Summary See appendix for McOpCo IPO after-tax proceeds schedule. FY 2006E $15,429 1,690 11.0% 560 25.0% $1,130 7.3% $308 $0.24 33 McOpCo Valuation Summary $ in millions EV/'06E EBITDA Multiple Range McOpCo Enterprise Value Net Debt (12/31/05) Equity Value of McOpCo Ending Shares Outstanding Price per share Estimated After-Tax IPO Proceeds (¹) See appendix for after-tax IPO proceeds schedule Low 6.5x $7,343 1,350 $5,993 1,274 $4.70 $3,042 High 7.5x $8,472 1,350 $7,122 1,274 $5.59 $3,497#35III. Pershing's Proposal to McDonald's: McOpCo IPO The valuation of PF McDonald's suggests a valuation range of $45-$50 per share. Based on the midpoint of the valuation analysis, PF McDonald's could be worth $47.50 per share, a 44% premium over where it trades today. PF McDonald's Valuation PF McDonald's Summary Financials $ in millions Financial Summary Franchise Revenue Real Estate Revenue Total Revenue Pro Forma McDonald's: Valuation Summary Franchise EBITDA, Pre G&A Real Estate EBITDA, Pre G&A Less: Allocated G&A Assumed G&A as a Percentage of Total G&A Total EBITDA EBITDA Margins Net Income EPS FY 2006E $2,275 5,118 $7,393 $2,275 3,869 1,680 75.0% $4,464 60.4% 2,141 $2.27 (1) Assumes $1.35 billion of net debt allocated to McOpCo and $5.0 billion of net debt allocated to PF McDonald's. In addition, assumes $9.7 billion of incremental leverage placed on PF McDonald's. (2) Represents 35% of the market equity value of McOpCo. (3) Assumes incremental leverage and the after-tax proceeds from McOpCo IPO (net of fees and expenses) are used to buy back approximately shares 316 million shares at an average price of $40. (4) Assumes a recent stock price of $33. (5) P/FY '06E FCF multiple adjusted for Pro Forma McDonald's 35% stake in McOpCo. (6) Fees and expenses associated with the IPO and financing transactions. 34 $ in millions EV/06E EBITDA Multiple Range Enterprise Value Less: Net Debt (12/31/05E) Plus: Remaining Stake in McOpCo Equity Value Ending Shares Outstanding (12/31/05E) Price Per Share Premium to recent price (4) (1) (2) Implied P/FY 2006 EPS Multiple Implied P/FY 2006 FCF Multiple (5) # of shares repurchased (mm) Average price of stock purchased (3) Implied FCF / Dividend Yield Memo:Share Buyback: Incremental Debt Issued Less Transaction Fees and Expenses (6) Approximate Cash Received From IPO, after Tax Total Funds Available for Repurchase Low 12.5x $55,799 14,650 2,097 $43,247 957.3 $45 36.9% 19.9x 19.8x 5.1% High 13.5x $60,263 14,650 2,493 $48,106 957.3 $50 52.3% 22.2x 21.9x 4.6% $9,685 ($300) $3,270 $12,654 316 $40#36III. Pershing's Proposal to McDonald's: McOpCo IPO Set forth below are the sources and uses of proceeds associated with a $14.7 bn issuance of secured collateralized financing (net of cash on hand), or an incremental $9.7 of net debt, based on expected net debt as of FY 2005E. We have assumed a 5% fixed rate for this collateralized financing. After this transaction, Pro Forma McDonald's would be leveraged approximately 3.5x Total Debt/EBITDA or at a 25% Debt to Enterprise Value ratio. Proceeds from this issuance would be used to repay existing debt, buyback shares and pay financing fees and expenses. $ in millions Sources New CMBS Financing (net of cash) Percentage Loan to Value Total Capitalization and Credit Profile of Pro Forma McDonald's Uses Repay Existing Net Debt at PF McDonald's Buyback Shares Fees and Expenses Total $14,650 44% $14,650 $4,965 9,535 150 $14,650 PF McDonald's Capital Structure Total Net Debt at Stand-alone McDonalds Less: Net Debt Allocated to McOpCo Net Debt at PF McDonalds Incremental Debt Issued through CMBS Total Net Debt Total Debt / EBITDA Net Debt / EBITDA Assumed Corporate Credit Total Debt / Total Capitalization 35 FY2005E $6,315 (1,350) $4,965 9,685 $14,650 3.5x 3.4x Investment Grade 24.5%#37III. Pershing's Proposal to McDonald's: McOpCo IPO Total Debt / '05E EBITDA (1) 12.0x 9.0x 6.0x 3.0x 0.0x (1) (2) 75% 50% Debt / Enterprise Value 100% 25% 0% EBITDA/Interest: 3.5x McDonald's Pro Forma 25% McDonald's Pro Forma 5.8x (2) I Comparing PF McDonald's Credit Stats with Comparable Real Estate Holding C-Corporations 8.1x Brookfield Properties 48% Brookfield Properties 2.3x 11.3x British Land 56% British Land 36 1.5x 6.1x Land Securities 35% Land Securities Rating: BBB BBB NR Based on Wall Street research estimates. Pro Forma McDonald's EV assumes a valuation multiple of 13x EV/FY'06 EBITDA. Assumes an average 5% fixed rate on PF McDonald's debt. 2.5x 10.2x Forest City Enterprises 59% Forest City Enterprises ΝΑ BB+#38III. Pershing's Proposal to McDonald's: McOpCo IPO A review of large REITs indicates that these businesses support investment grade ratings with a debt to enterprise value of 36% on average, as compared to Pro Forma McDonald's which would have a debt to enterprise value of 25%. Company Name Simon Property Group Inc. Equity Office Properties Trust Vornado Realty Trust Equity Residential Prologis Archstone-Smith Trust Boston Properties Inc. Kimco Realty Corp. AvalonBay Communities Inc. Median Total Debt/EV Average Total Debt/EV Credit Ratings of Large Public REITS PF McDonald's Total Debt/EV Notes: Stock prices as of 11/11/2005. PF McDonald's EV assumes a valuation multiple of 13x EV/FY'06 EBITDA. Total Debt includes Preferred. 37 Total Debt/ Enterprise Value 47.2% 50.9% 37.4% 38.4% 31.5% 33.5% 36.0% 25.2% 27.3% 36% 36% 25% Moody's Rating Baa2 Baa3 Baa3 Baa1 Baal Baa1 NR Baa1 Baal Moody's Outlook Stable Stable Stable Stable Stable Stable NR Stable Stable S&P Rating BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ BBB+ A- BBB+ S&P Outlook Stable Stable Stable Stable Stable Stable Stable Stable Stable#39III. Pershing's Proposal to McDonald's: McOpCo IPO Pro Forma McDonald's Has A Superior Credit Profile to a Typical REIT Despite being a C-Corp and lacking the tax advantages of a REIT, PF McDonald's has several superior credit characteristics ▶ REITs are required to pay 90% of earnings through dividends, whereas Pro Forma McDonald's has much more credit flexibility ► PF McDonald's has significant brand value to support its cash flows and overall credit 38#40IV. Company Response to Pershing#41IV. Company Response to Pershing Company Response to Pershing McDonald's asked its Advisors to help review the Proposal Goal was to review the proposal to assess 4 critical areas: Advisors reported back with judgments on ►(1) Valuation ► (2) Credit Impact McDonald's Management reviewed the Proposal to assess ► (3) Friction Costs ► (4) Governance / Alignment Issues 40#42IV. Company Response to Pershing Friction Costs Some friction costs associated with the CMBS financing structure, but not a gating issue ► Potential property tax revaluations Legal costs ► Large transaction for CMBS market ► Mostly driven by CMBS financing Management Concerns: Friction Costs, Credit Impact and Governance Issues Credit Impact Incremental $9bn of leverage as proposed may put pressure on credit rating ► Rating agency consolidation of McOpCo Lease commitments viewed as leverage Alignment Issues Separation of McOpCo from PF McDonald's may cause alignment issues in the system McDonald's management stated that, assuming adequate value creation, none of these issues would prevent a restructuring 41#43IV. Company Response to Pershing Valuation: Judgments Made by Advisors ► Advisors were assigned to review the Proposal In general, Advisors agreed with Pershing on: ✓ McOpCo valuation ✓ Relative allocation of EBITDA between McOpCo and PF McDonald's However, their judgment was that PF McDonald's would not enjoy significant multiple expansion "PF McDonald's would trade like a restaurant stock" 42#44V. Developing a Response to the Company#45V. Developing a Response to the Company Pershing's Response Regarding Friction Costs and Credit Impact Friction Costs ✓ Friction costs immaterial in the context of value creation ✓ Friction costs and transaction delays were driven by CMBS financing ✓ Similar transaction could be effected with corporate debt 44 Credit Impact ✓ Stability of PF McDonald's cash flow stream and robust asset base should allow it to incur additional debt without a material adverse change in rating ✓ YUM's credit rating is BBB-#46V. Developing a Response to the Company Franchisee Alignment: "Skin in the Game" Franchisor/Franchisee Conflict ► Top Line (percent of sales) vs. Bottom Line Some believe this conflict is mitigated by owning and operating units However, many of the most successful franchisors operate few, if any, units Historical McDonald's ► Subway Dunkin' Donuts Tim Hortons McDonald's current "skin in the game" is overstated due to lack of transfer pricing ► We believe McOpCo represents ~10% of McDonald's total value PF McDonald's role as landlord, franchisor, 35% shareholder and board member, leaves them with ample skin in the game 45#47V. Developing a Response to the Company Franchisee Alignment: Benefits to Franchisees of an independent McOpCo McOpCo IPO would shift some power to the franchise base-A good thing ▸ Franchisees know what's best operationally Franchisees have been the source of most product innovations (i.e. Big Mac, Egg McMuffin, Filet-o-Fish, Apple Pie) Driving force behind current process innovations (call centers at drive- thru) IPO would sharpen focus on being best in class franchisor Level the playing field: McOpCo should compete on the same basis as franchisees Pay market rent and franchise fees Be focused on bottom-line profitability Be run by equity compensated management Opportunity for Franchisees to expand unit count Heavy demand among operators to acquire/manage additional units McOpCo should refranchise units better managed by franchisees 46#48V. Developing a Response to the Company What It Boils Down To: Valuation of PF McDonald's Although there are some differences in opinion regarding friction costs, leverage and potential alignment issues, the key disparity between Pershing and the Company's views was regarding the Valuation of Pro Forma McDonald's... 47#49V. Developing a Response to the Company PF McDonald's FY2005E EBITDA pre-G&A Contribution Pro Forma McDonald's is Not a Restaurant Company Real Estate 63% 48 Brand Royalty 37%#50V. Developing a Response to the Company PF McDonald's operating metrics are much closer to a typical Real Estate C-Corporation or a high branded intellectual property business such as PepsiCo or Coca-Cola than they are a typical QSR. Assumes PF McDonald's price of $47.50 2005E Operating Metrics: EBITDA Margins EBITDA - CapEx Margins EPS Growth Trading Multiples Adjusted Enterprise Value (2) / CY 2006E EBITDA CY 2006E EBITDA - CapEx Price / CY 2006E EPS CY 2006E FCF (3) Leverage Multiples Net Debt / EBITDA Total Debt / Enterprise Value Pro Forma McDonald's 60% 50% 9% Comparable Companies 13.0x 15.5x 21.1x 20.9x 3.4x 24% Stock prices as of 11/11/05. Projections based on Wall Street estimates. (1) Typical mature QSR based on YUM! Brands and Wendy's. (2) Adjusted for unconsolidated assets. (3) FCF denotes Net Income plus D&A less CapEx. Typical Real Estate C-Corp ~70% -80% ~65% -75% NA ~13x - 16x ~17x - 20x ΝΑ ~20x - 25x ~5x - 10x ~35% - 60% 49 High Branded Intangible Property Choice Hotels 66% 61% 16% 15.1x 16.0x 24.3x 24.0x 1.7x 11% PEPSICO 23% 18% 11% 12.3x 15.5× 20.1x 20.8x 0.0x 4% Coca-Cola 31% 27% 9% 12.6x 14.2x 18.8x 18.9x NM 4% Typical Mature QSR ~15% - 20% ~7.5% -12.5% ~10% -12% ~8.5x - 9.5x ~12x - 15x ~15x - 19x ~16x - 20x ~0.5x - 1.8x ~7.5% - 20%#51V. Developing a Response to the Company At McDonald's current price of approximately $33 per share, we estimate Pro Forma McDonald's dividend / FCF yield would be approximately 6.7%. (1) McDonald's Stock Price McOpCo Share Price (7x EV / EBITDA Multiple) Implied Pro Forma McDonald's Share Price Yield on Pro Forma McDonald's Memo: Pro Forma McDonald's Free Cash Flow 2006E EBITDA Less: Maintenance Capital Expenditures Less: Growth Capital Expenditures Plus / Less: Decreases / (Increases) in Working Capital Significant Free Cash Flow Yield / Dividend Yield Assuming No Incremental Debt Less: Interest (1) Less: Cash Taxes Free Cash Flow PFMcDonald's Shares Out (assuming no self-tender) Free Cash Flow per Share $4,464.0 (438.6) (285.9) 6.2 250.0) (1,112.7) $2,383.0 1,273.7 $1.87 $33.00 $37.00 $41.00 $45.00 $49.00 $53.00 $57.00 $5.15 $5.15 $5.15 $5.15 $5.15 $5.15 $5.15 27.85 31.85 35.85 39.85 43.85 47.85 51.85 6.7% 5.9% 5.2% (1) Assuming PF McDonald's pays out 100% of its FCF as dividends. (2) Assumes no incremental leverage and an average cost of debt of 5% on the existing $5 bn of net debt at Pro Forma McDonald's. 50 4.7% 4.3% 3.9% 3.6%#52V. Developing a Response to the Company Pershing believes the best way to think about Pro Forma McDonald's is as a growing annuity. Real Estate and Franchise EBITDA ($ in billions) $4.0 $3.0 $2.0 $1.0 $0.0 Real Estate & Franchise EBITDA Growth: P $1.5 1990 $1.6 4.9% $1.8 $1.9 Pro Forma McDonald's: Stable and Growing Based on Pershing Assumptions 11.7% 8.5% $2.1 $2.5 $2.6 $2.7 1991 1992 1993 1994 1995 1996 1997 1998 1999 10.4% 15.3% 4.0% $2.9 4.3% 51 10.1% Notes: Assumes McOpCo G&A to be 25% of consolidated G&A and Real Estate and Franchise G&A to be 75% of consolidated G&A. Assumes McOpCo pays franchise fees of 4% of sales and rent of 9% of sales. $3.2 7.4% $3.1 Based on Reported Financials (0.5%) $3.1 $3.2 2000 2001 2002 0.1% 0.9% $3.6 $4.0 2003 2004 12.6% 13.4%#53V. Developing a Response to the Company Scenario 1: No Sharebuyback No Incremental Leverage Scenario 2 Proposed Sharebuyback McDonald's Stock Price McOpCo Stock Price PF McDonald's Stock Price Pre-Tax Yield Which Would You Rather Own: Pro Forma McDonald's or a Large Retail REIT? (2) After-Tax Investor Yield (3) Estimated LT Dividend Growth PF McDonald's Stock Price Pre-Tax Yield (4) After-Tax Investor Yield (4) Estimated LT Dividend Growth $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 $60.15 5.15 5.15 5.15 5.15 5.15 5.15 5.15 $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 6.7% 5.9% 5.2% 4.7% 4.3% 5.7% 5.0% 4.4% 4.0% 3.6% 3.3% 7.2% 3% -4% $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 8.5% 7.9% 6.7% 5.8% 5.1% 4.6% 52 3.9% 6.7% 5.7% 4.9% 4.3% 3.9% 3% -4% Note: Assumes a 7x EV/FY '06E EBITDA multiple on McOpCo. (1) Retail / REIT dividend yield based on Simon Property Group. Illustrative LT Dividend growth based on Pershing's estimates. Assumes full payout of free cash flows for PF McDonald's. (2) (3) Assumes 15% tax rate on PF McDonald's dividend and a 35% tax rate on the REIT dividend. (4) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo. 3.6% 3.1% $55.00 4.1% 3.5% Typical Large Retail REIT (1) 4.0% 2.6% 3%- 6%#54V. Developing a Response to the Company Scenario 1: No Sharebuyback No Incremental Leverage Scenario 2 Proposed Sharebuyback McDonald's Stock Price McOpCo Stock Price PF McDonald's Stock Price Pre-Tax Yield (1) After-Tax Investor Yield Which Would You Rather Own: Pro Forma McDonald's or 10-Year U.S. Treasury? (2) Estimated LT Dividend Growth After-Tax Investor Yield PF McDonald's Stock Price (3) Pre-Tax Yield (3) Estimated LT Dividend Growth $60.15 $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 5.15 5.15 5.15 5.15 5.15 5.15 5.15 $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 6.7% 5.9% 5.2% 4.7% 4.3% 5.7% 7.2% 5.0% 4.4% 4.0% 3.6% 3.3% 3% -4% $28.00 $30.00 $35.00 $40.00 $45.00 8.5% 7.9% 6.7% 53 6.7% 5.7% 3% -4% Note: Assumes a 7x EV/FY '06E EBITDA multiple on McOpCo. (1) Assumes full payout of free cash flows for PF McDonald's. (2) Assumes 15% tax rate on PF McDonald's dividend and a 35% tax rate on the 10-Year Treasury dividend. (3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo. 3.9% $50.00 5.8% 5.1% 4.6% 4.9% 4.3% 3.9% 3.6% 3.1% 3% -4% $55.00 4.1% 3.5% 3% -4% 10 Year Treasury 4.6% 3.0% 0%#55V. Developing a Response to the Company Scenario 1: No Sharebuyback No Incremental Leverage Scenario 2 Proposed Sharebuyback McDonald's Stock Price McOpCo Stock Price PF McDonald's Stock Price Pre-Tax Yield (1) After-Tax Investor Yield Which Would You Rather Own: Pro Forma McDonald's or a Treasury Inflation Protected Security (TIPS)? (2) Estimated LT Dividend Growth After-Tax Investor Yield PF McDonald's Stock Price Pre-Tax Yield (3) (3) Estimated LT Dividend Growth $33.15 $35.15 $40.15 $45.15 $50.15 $55.15 5.15 5.15 5.15 5.15 5.15 $30.00 $35.00 $40.00 $45.00 $50.00 5.15 $28.00 6.7% 5.7% 5.9% 5.2% 4.7% 4.3% 7.2% 5.0% 4.4% 4.0% Note: Assumes a 7x EV /FY '06E EBITDA multiple on McOpCo. (1) Assumes full payout of free cash flows for PF McDonald's. (2) Assumes 15% tax rate on PF McDonald's dividend and a 35% tax rate on the TIPS dividend. (3) Scenario 2 Pre-Tax and After-Tax Yields are adjusted for a 35% stake in McOpCo. 3% -4% 6.7% 5.7% 54 $28.00 $30.00 $35.00 $40.00 $45.00 $50.00 7.9% 6.7% 5.8% 5.1% 4.6% 8.5% 3.6% 3% -4% 3.9% 3.3% 4.9% 4.3% 3.9% $60.15 5.15 $55.00 3.6% 3.1% $55.00 4.1% 3.5% 10 Year TIPS 2.1% 3.0% 2.5%#56V. Developing a Response to the Company Based on a review of the cost of capital of Real Estate holding corporations and Intangible Property/ Franchise businesses like Coca Cola and Choice Hotels, we believe that Pro Forma McDonald's levered FCF could have a discount rate in the area 7.25% - 7.75%. As such, we believe PF McDonald's would have a FCF Yield of 4.25% - 5.25%. This implies a midpoint equity valuation range of $48 per share. Estimated Discount Rate Implied Perpetuity Growth Rate Implied FCF Yield Implied FCF Multiple Valuation of McDonald's as a Growing Annuity (1) FY'06E Free Cash Flow per Share (Note: FCF Assumes Proposal Scenario) Low 7.75% 2.50% 5.25% 19.0x $2.17 High 7.25% 3.00% 4.25% 23.5x $2.17 Midpoint of PF McDonald's Equity Value per Share(2): $48 (1) Assumes no dividend paid in FCF calculation. (2) Includes the value of PF McDonald's 35% equity stake in McOpCo (approx. $2 per share). Assumes a 7x EV / FY '06E EBITDA McOpCo valuation multiple. 55#57V. Developing a Response to the Company Conclusions McDonald's is significantly undervalued today ■ Over 80% of its cash flows comes from real estate income and franchise income ► Proposal creates value for several reasons ■ Increases shareholder value ■ Improves management focus ■ Increases transparency ■ Improves capital allocation ■ Improves franchise alignment There are multiple ways to unlock value ■ Pershing's Initial Proposal Variations on Pershing's Initial Proposal 56#58V. Developing a Response to the Company Next Steps Engage constituents regarding proposal ■ Shareholders ■ Franchisees ■Broad investment community Incorporate your feedback ► Consider revised proposal 57#59V. Developing a Response to the Company Q & A 58#60Appendix#61A. Pershing's Proposal: Assumptions#62A. Pershing's Proposal: Assumptions Pershing has assumed the following structural and tax assumptions with respect to an IPO spin-off of McOpCo. McOpCo IPO: General Assumptions 65% of McOpCo shares are IPO'ed in the transaction ■ 35% stake retained by PF McDonald's allows for McOpCo's business to be deconsolidated McOpCo is assumed to be essentially a debt free subsidiary Immediately prior to the IPO, $1.35bn of McDonald's consolidated FY '05E net debt is allocated to McOpCo ■ $1.5 billion of total debt allocated ■ $150mm of cash and cash equivalents allocated The remaining $5bn of FY '05E net debt is allocated to PF McDonald's ■ $5.15bn of total debt ■ $150mm of cash and cash equivalents McOpCo's tax basis is assumed to be approximately $1.65 billion ■ Tax basis is equal to $3 billion of initial assumed basis (based on an assessment of net equipment and other property at McDonald's) less $1.35 billion of allocated net debt To the extent that the IPO distribution exceeds PF McDonald's tax basis in McOpCo, then the tax cost for the IPO would be the amount by which the IPO distribution exceeds McDonald's basis multiplied by McDonald's corporate and state/local tax rate 61#63A. Pershing's Proposal: Assumptions Step 1: McOpCo dividends a $4.2bn Note to McDonald's (parent) $4.2bn Note M McDonald's McOpCo ► McOpCo declares and pays a dividend to McDonald's (parent) in the form of a Note in an amount equal to the anticipated proceeds from an initial public offering of McOpCo ► For illustrative purposes, we assume the Note is for $4.2bn, or 65% of the equity market value of McOpCo (assumed to be $6.5bn) McOpCo IPO: Structural And Tax Observations Step 2: IPO of McOpCo and Tax Costs IPO of McOpCo Shares McDonald's retains 35% stake Equity Markets McOpCo McDonald's ■ $4.2 bn cash received McOpCo repays $4.2 bn Note to McDonald's McOpCo undertakes the IPO and uses the proceeds to repay the dividend note. The tax cost for the IPO would be the amount by which the IPO distribution exceeded McDonald's basis in the McOpCo stock multiplied by McDonald's corporate and state/local tax rate Assuming a $4.2bn of IPO distribution, the tax cost would be approximately $1bn ■ Tax cost equals $4.2 billion of distribution less $1.65 billion of basis multiplied by the tax rate of 38% 62 As such, after tax proceeds of the McOpCo IPO will be approximately $3.2 billion Step 3: Leveraged Self-Tender at Pro Forma McDonald's PropCo Issues CMBS financing, or $9.7bn of incremental debt Pro Forma M McDonald's PF McDonald's performs a leveraged self-tender FranCo No debt at FranCo ► PF McDonald's is organized as a real estate business ("PropCo") and a franchise business ("Franco") PropCo issues secured financing with proceeds used for ■ Repaying existing debt at PF McDonald's ■ Buying back shares ► PF McDonald's performs a self tender using proceeds from: New CMBS financings ■ After tax proceeds of IPO#64A. Pershing's Proposal: Assumptions Set forth herein is a schedule of the after-tax proceeds from the McOpCo IPO. McOpCo IPO Proceeds McOpCo IPO After Tax Proceeds Low Taxes payable McOpCo Equity Market Value IPO Percentage Distribution to PF McDonald's Book Basis of McOpCo Net Debt Allocated to McOpCo Adjusted Basis in McOpCo Taxable Gain Tax Rate Taxes payable After Tax Proceeds Distribution Taxes Payable After Tax Distributions 63 $5,993 65% $3,895 3,000 (1,350) 1,650 $2,245 38% $853 $3,895 (853) $3,042 High $7,122 65% $4,630 3,000 (1,350) 1,650 $2,980 38% $1,132 $4,630 (1,132) $3,497 Average $6,558 65% $4,262 3,000 (1,350) 1,650 $2,612 38% $993 $4,262 (993) $3,270#65A. Pershing's Proposal: Assumptions Assuming PF McDonald's owns the land and building of 37% of its system wide units and owns the buildings of 22% of its system wide units, then a preliminary valuation of McDonald's real estate suggests a value of $33 billion. $ in million Property Value Owns Land and Building Owns Building (Leases Land) Collateralized Financing $ in million Leasehold Value Leaseholds Avg. Annual Rev. Per Unit 1.75 1.75 Est. Market Est. Market Rent % Rent $ 9.0% 4.5% 0.16 0.08 Est. Rent Spread Per Avg unit 64 0.10 Est. # of Units 11,709 6,962 Est. # of Units 12,975 Est. Rent Income 1,844.2 548.3 Estimated Property Value Est. Rent Income, Net 1,322.8 Estimated Leasehold Value Total Real Estate Collateral Value Cap Rate 7.0% 8.0% Cap Rate 10.0% Total Real Estate Value $26,346 $6,854 $33,200 Total Real Estate Value $13,228 $13,228 $46,428#66A. Pershing's Proposal: Assumptions We estimated the asset betas of several Real Estate holding C-Corporations and several high branded intellectual property businesses. High Branded Intangible Property Business Betas (Dollar values in millions) Company Coca Cola Co. Pepsico Inc. Choice Hotels Mean Median Company British Land Brookfield Properties Forest City Enterprises Land Securities Adjusted Equity Beta Mean Median 0.49 0.46 0.86 Real Estate Business Betas (Dollar values in millions) 0.60 0.49 PF McDonald's: Cost of Capital Adjusted Equity Beta 0.62 0.80 0.66 0.55 0.66 0.64 Cost of Equity 7.3% 7.2% 9.3% 7.9% 7.3% Cost of Equity 8.0% 9.0% 8.2% 7.7% 8.2% 8.1% Equity Value $101,776.1 99,498.9 2,285.7 $67,853.6 99,498.9 Equity Value $8,913.9 6,805.9 3,863.9 12,279.2 Note: Market information as of 11/10/05. Utilized treasury stock method. Sources: Barra, company reports, Factset, and Wall Street Equity research. $7,965.7 7,859.9 Total Debt $4,200.0 4,607.0 296.7 65 $3,034.6 4,200.0 Total Debt $11,391.1 6,208.0 5,566.0 6,484.2 $7,412.3 6,346.1 Preferred Stock 41.0 $13.7 Preferred Stock 1,477.0 $369.3 Marginal Tax Unlevered Rate 38.0% 38.0% 38.0% 38.0% 38.0% Marginal Tax Rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Beta 0.48 0.45 0.79 0.57 0.48 Unlevered Beta 0.34 0.45 0.35 0.42 0.39 0.38 Total Debt & Preferred / TEV 4.2% 4.7% 11.7% 6.8% 4.7% Total Debt & Preferred / TEV 56.8% 60.5% 59.3% 34.6% 52.8% 58.0%#67A. Pershing's Proposal: Assumptions Based on a blended asset beta calculation we determined a range of values for the WACC of PF McDonald's. Blended Asset Beta Calculation Asset Beta Average Real Estate Unlevered Asset Beta Main Target Assumptions PreTax Cost of Debt Risk-Free Rate Equity Risk Premium Tax Rate WACC Calculation Unlevered Asset Beta Releverd Beta Levered Cost of Equity Equity Weight After Tax Cost of Debt Target Debt & Pref. / TEV Implied Debt / Equity WACC 0.38 % Contribution from Real Estate 6.0% 4.6% 5.0% 38.0% 0.46 0.56 7.4% 75.0% PF McDonald's: Cost of Capital (Cont'd) 3.7% 25.0% 33.3% 6.5% Average High Branded Intellectual Property 60.0% Unlevered Asset Beta WACC Sensitivity Analysis Equity Risk Premium Debt / TEV Note: Market information as of 11/10/05. Utilized treasury stock method. Sources: Barra, company reports, Factset, and Wall Street Equity research. 4.0% 5.0% 6.0% 7.0% 15.0% 20.0% 25.0% 30.0% 35.0% 66 0.45 5.8% 6.1% 6.4% 6.8% 0.45 6.4% 6.2% 6.1% 5.9% 5.8% Asset Beta 0.57 0.50 5.9% 6.3% 6.7% 7.0% 0.50 6.6% 6.4% 6.3% 6.1% 5.9% % Contribution from High Branded Intellectual Property Levered Beta 0.55 6.1% 6.5% 6.9% 7.3% Levered Beta 0.55 6.8% 6.6% 6.5% 6.3% 6.1% 40.0% Blended Average Unlevered Asset Beta 0.60 6.2% 6.7% 7.1% 7.6% 0.60 7.0% 6.8% 6.7% 6.5% 6.3% 0.45 0.65 6.4% 6.8% 7.3% 7.8% 0.65 7.3% 7.0% 6.8% 6.6% 6.4%#68B. PF McDonald's Financial Analysis#69B. PF McDonald's Financial Analysis Set forth herein are the assumptions for the Pro Forma McDonald's business. ▶ Pro Forma McDonald's: Model Key Drivers Net Unit Growth ■ Approximates 1.5% - 2.0% of total franchise system unit growth annually or 1.0% - 1.5% of systemwide unit growth Revenue drivers: ■ Average systemwide same-store sales CAGR of -2.5% annually ■ Rental revenue from franchisees of 9.0% of franchise & affiliated system sales ■ Rental revenue from McOpCo of 9.0% of McOpCo sales Franchise revenue from franchisees of 4.0% of franchise & affiliated system sales Franchise revenue from McOpCo of 4.0% of McOpCo sales ■ Cost drivers: ■ Franchise rental expense based on a historical % of rental revenue from franchisees ■ McOpCo rental expense based on a historical % of rental revenue from McOpCo ■ D&A calculated assuming a 20-year useful life for existing net depreciable PP&E of approximately $12.5 billion (excluding land), and a 20-year useful life for depreciable PP&E purchased in the future 75% of SG&A allocated to Pro Forma McDonald's ■ Net CapEx drivers: ■ ■ ■ ■ ■ ■ Other ■ ■ ■ ■ ■ ■ ■ All CapEx is net of proceeds received from store closures $1.3 million of CapEx for each new unit where Pro Forma McDonald's owns the land and the building in 2005 and 2006, growing at an inflationary rate of 2.0% thereafter $650K million of CapEx for each new unit where Pro Forma McDonald's owns the building but not the land in 2005 and 2006, growing at an inflationary rate of 2.0% thereafter Run-rate maintenance CapEx of approximately $320 million, implying approximately $10K per system wide unit, growing at 2% Allocation of 75% of consolidated McDonald's corporate CapEx Consolidated corporate CapEx held constant at 0.7% of sales Incremental total debt of $9.7 billion, resulting in total debt of approximately $14.8 billion (net debt of $14.65bn) Free cash used to buy back shares and pay dividends $150 mm minimum cash balance Tax rate of 32% Minimal working capital requirements 25% Debt to Cap ratio increasing to 30% in 2008 Assumes an illustrative 30% dividend payout ratio to match current consolidated McDonald's 68#70B. PF McDonald's Financial Analysis Set forth below is table which reconciles McOpCo's, the Real Estate and Franchise businesses' and stand-alone McDonald's FY 2004 income statements, as they are currently reported. The analysis demonstrates how McOpCo is paying neither a market rent nor a franchise fee. (U.S. $ in millions) Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Franchise Fees From Franchise and Affiliate Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Occupancy and Other Expenses (excl. D&A) Company Operated D&A Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT 2004 McDonald's P&L As Reported McDonald's Depreciation & Amortization EBITDA % of Total EBITDA 2004 Income Statement $14,224 3,336 1,505 $19,065 4,853 3,726 2,747 774 $12,100 576 427 1,980 3,982 1,201 $5,183 100% McOpCo P&L $14,224 $14,224 4,853 3,726 2,747 427 $11,753 495 1,976 427 $2,403 46% Real Estate and Franchise P&L 3,336 1,505 $4,841 347 $347 576 427 1,485 2,006 774 $2,780 54% 2004 Consolidated Sum of Parts $14,224 3,336 1,505 $19,065 4,853 3,726 2,747 774 $12,100 576 427 1,980 3,982 1,201 $5,183 100% The analysis assumes that 75% of the total G&A is allocated to the Real Estate and Franchise business and 25% is allocated to McOpCo. To the extent that there should be more G&A allocated to McOpCo, then there would be a greater percentage of total EBITDA at the Real Estate and Franchise business than what is shown here. Note: Analysis excludes $441 mm of non-recurring other net operating expenses. 69#71(1) B. PF McDonald's Financial Analysis Set forth below is a table which reconciles McOpCo's, Pro Forma McDonald's and standalone McDonald's FY 2005E income statements. The analysis demonstrates the flow of rent income, franchise income and rent expense upon separation of the businesses. (U.S. $ in millions) Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Rent From Company Operated Rest. Franchise Fees From Franchise and Affiliate Rest. Franchise Fees From Company Operated Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Non-Rent Occupancy and Other Expenses (excl. D&A) Company Operated D&A Company-Operated Rent Expense Additional Rent Payable to Propo Franchise Fee Payable to FranCo Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT 2005E P&L Reconciliation Depreciation & Amortization EBITDA % of Total EBITDA Maintenance Capex EBITDA - Maintenance Capex % of Total EBITDA - Maintenance Capex 2005 Projected Income Statement $15,042 3,578 1,590 $20,211 5,132 3,926 2,400 789 616 $12,863 600 499 2,174 4,075 1,288 $5,362 100% 1,250 4,113 100% McOpCo P&L $15,042 $15,042 5,132 3,926 2,400 576 616 737 602 $13,989 544 510 576 $1,086 20% 501 585 14% Pro Forma McDonald's P&L 3,578 1,354 1,590 602 $7,124 214 616 $830 600 499 1,631 3,564 712 $4,277 80% 749 3,528 86% Inter-Company Eliminations (1,354) (602) ($1,956) (616) (737) (602) ($1,956) $0 2005 Consolidated Sum of Parts $15,042 3,578 1,590 $20,211 5,132 3,926 2,400 789 616 $12,863 600 499 2,174 4,075 1,288 $5,362 100% 1,250 4,113 100% Assumes total PF McDonald's D&A of approximately $712 million, which is composed of $499 million (or 70%) of franchise PP&E and $214 million (or 30%) of D&A associated with company-operated units. 70#72(1) B. PF McDonald's Financial Analysis Set forth below is a table which reconciles McOpCo's, Pro Forma McDonald's and standalone McDonald's FY 2006E income statements. The analysis demonstrates the flow of rent income, franchise income and rent expense upon separation of the businesses. (U.S. $ in millions) (U.S. $ in millions) Sales by Company Operated Restaurants Rent from Franchise and Affiliate Rest. Rent From Company Operated Rest. Franchise Fees From Franchise and Affiliate Rest. Franchise Fees From Company Operated Rest. Total Revenue Company Operated Expenses: Food and Paper Compensation & Benefits Non-Rent Occupancy and Other Expenses (excl. D&A) Company Operated D&A Company-Operated Rent Expense Additional Rent Payable to PropCo Franchise Fee Payable to FranCo Total Company Operated Expenses Franchised Restaurant Occupancy Costs Franchise PPE D&A Corporate G&A EBIT Depreciation & Amortization EBITDA from Operations % of Total EBITDA 2006E P&L Reconciliation Maintenance Capex EBITDA - Maintenance Capex % of Total EBITDA - Maintenance Capex 2006 Projected Income Statement $15,429 3,730 1,658 $20,816 5,264 4,012 2,458 808 632 $13,174 617 516 2,240 4,269 1,324 $5,594 100% 943 4,651 100% Pro Forma McOpCo McDonald's P&L P&L $15,429 $15,429 5,264 4,012 2,458 587 632 756 617 $14,327 560 542 587 $1,130 20% 504 626 13% 3,730 1,389 1,658 617 $7,393 221 632 $853 617 516 1,680 3,727 737 $4,464 80% 439 4,025 87% Inter-Company Eliminations (1,389) (617) ($2,006) (632) (756) (617) ($2,006) $0 2006 Consolidated Sum of Parts $15,429 3,730 1,658 $20,816 5,264 4,012 2,458 808 632 $13,174 617 516 2,240 4,269 1,324 $5,594 100% 943 4,651 100% Assumes total PF McDonald's D&A of approximately $737 million, which is composed of $516 million (or 70%) of franchise PP&E and $221 million (or 30%) of D&A associated with company-operated units. 71#73B. PF McDonald's Financial Analysis Set forth herein is a table which demonstrates net capital expenditures by category for McOpCo, PF McDonald's and the standalone (consolidated) McDonald's. Note: Our Free Cash Flows are derived using Net Capital Expenditures, net of proceeds received from closures. We note that the Company typically generates $300-$400mm of proceeds annually from closings. 2006E Net Capital Expenditures Reconciliation 2006E Net Capital Expenditures (U.S. $ in millions) New Restaurants, Net Existing Restaurants Corporate/Other Net Capital Expenditures 72 Consolidated McDonald's $316 787 156 $1,259 McOpCo $30 465 39 $534 Pro Forma McDonald's $286 322 117 $724#74B. PF McDonald's Financial Analysis Below are the summary projections for Pro Forma McDonald's based on the assumptions detailed on page 68. ($ in millions, except per share data) Income Statement Data Revenue % Growth EBITDA % Margin EBITDA - CapEx % Margin D&A EBIT % Margin Net Interest Expense Equity Income from OpCo Net Income EPS Average Shares Outstanding 2002A $5,401.0 $3,168.7 58.7% $2,492.7 46.2% 2003A $6,008.5 11.2% $3,568.2 59.4% PF McDonald's: Summary Income Statement $2,827.4 47.1% 2004A $6,690.0 11.3% $4,046.0 60.5% 4,046.0 60.5% 774.0 $3,272.0 48.9% 35.0% 2005E $7,124.1 6.5% $4,276.7 60.0% 3,312.7 46.5% 712.3 $3,564.4 50.0% 2006E $7,393.1 3.8% $4,464.0 60.4% 3,739.5 50.6% 736.9 $3,727.0 50.4% 73 (736.6) 107.9 $2,141.4 $2.27 945.4 2007E $7,676.7 3.8% $4,653.4 60.6% 3,909.2 50.9% 768.5 $3,884.9 50.6% (801.5) 121.9 $2,218.6 $2.47 897.8 2008E $7,969.9 3.8% $4,849.3 60.8% 4,085.0 51.3% 794.5 $4,054.8 50.9% (889.7) 137.5 $2,289.8 $2.72 842.8 2009E $8,276.2 3.8% $5,054.9 61.1% 4,258.5 51.5% 821.5 $4,233.4 51.2% (932.5) 151.7 $2,396.3 $2.97 806.4 2010E $8,596.2 3.9% $5,270.8 61.3% 4,440.1 51.7% 849.6 $4,421.2 51.4% (971.8) 162.4 $2,507.9 $3.24 773.3 2011E $8,930.9 3.9% $5,497.5 61.6% 4,630.1 51.8% 878.8 $4,618.6 51.7% (1,012.7) 171.9 $2,623.9 $3.54 741.8 2006 - 2011 CAGR 3.9% 4.3% 4.4% 4.4% 4.1% 9.3%#75B. PF McDonald's Financial Analysis Below are the summary cash flow projections for Pro Forma McDonald's based on the assumptions detailed on page 68. ($ in millions, except per share data) Cash Flow Data EBITDA less: Cash Taxes less: Cash Interest Expense less: Dividends less: Change in Working Capital less: Growth CapEx less: Maintenance CapEx plus: After-tax Dividends from McOpCo Free Cash Flow (post dividends) Free Cash Flow (pre dividends) FCF per Share (pre dividends) Balance Sheet Data Cash Revolver Long-Term Debt Total Debt / Capitalization Total Debt / EBITDA Net Debt / EBITDA 2002A PF McDonald's: Summary Cash Flow and Balance Sheet 2003A 2004A 2005E 150.0 0.0 $14,800.0 24.5% 3.5x 3.4x 74 2006E $4,464.0 (956.9) (736.6) (653.2) 6.2 (285.9) (438.6) 0.0 $1,398.9 2,052.1 $2.17 150.0 0.0 14,800.0 26.8% 3.3x 3.3x 2007E $4,653.4 (986.7) (801.5) (676.8) 6.5 (291.6) (452.6) 0.0 $1,450.8 2,127.6 $2.37 150.0 0.0 17,393.4 30.0% 3.7x 3.7x 2008E $4,849.3 (1,012.8) (889.7) (698.5) 6.7 (297.4) (466.9) 0.0 $1,490.7 2,189.2 $2.60 150.0 0.0 18,331.6 30.0% 3.8x 3.7x 2009E $5,054.9 (1,056.3) (932.5) (731.0) 7.0 (314.7) (481.7) 0.0 $1,545.7 2,276.7 $2.82 150.0 0.0 19,104.0 30.0% 3.8x 3.7x 2010E $5,270.8 (1,103.8) (971.8) (765.0) 7.2 (333.5) (497.2) 0.0 $1,606.7 2,371.7 $3.07 150.0 0.0 19,904.5 30.0% 3.8x 3.7x 2011E $5,497.5 (1,153.9) (1,012.7) (800.4) 7.5 (354.0) (513.4) 0.0 $1,670.6 2,471.0 $3.33 150.0 0.0 20,740.4 30.0% 3.8x 3.7x 2006 - 2011 CAGR 8.9%#76C. McOpCo Financial Analysis#77C. McOpCo Financial Analysis Set forth herein are the assumptions for the McOpCo business. McOpCo: Model Key Drivers Net Unit Growth ■ 90 net new owned restaurants in 2005 Net unit growth thereafter only in the franchised system. Assumes 200 new gross units and 200 closed units annually. Revenue drivers: Average same-store sales growthof 2.5% -2.7% annually on a total company basis Average unit sales of $1.6mm on a global basis in FY 2005 Cost drivers: Food and paper costs held constant at 34.1% of sales, based on historicals Payroll and employee costs of 26.1% in 2005, stepping down to 25.5% percent by 2011 Occupancy and other costs (excluding D&A) held constant at 20.5% of sales D&A calculated as 110% of capex in 2006 trailing to approximately 107% of CapEx by 2015 ■ ■ ■ ■ I CapEx drivers: 4.0% of sales paid to Pro Forma McDonald's as a franchise fee 25% of consolidated SG&A allocated to McOpCo Average maintenance CapEx per unit of approximately $50k in 2005 and 2006, growing at an inflationary rate of 2.0% thereafter ■ Allocation of 25% of consolidated McDonald's corporate CapEx ■ Consolidated corporate CapEx held constant at 0.7% of sales Other I ■ No dividends Total Debt of $1.5 billion allocated (Net Debt of $1.35bn) Free cash used to pay down debt and then buy back shares $150 mm minimum cash balance Tax rate of 32% Minimal working capital requirements 76#78C. McOpCo Financial Analysis (U.S. $ in millions) Income Statement Data Revenue Set forth below are the summary projections for McOpCo based on the assumptions detailed on page 76. % Growth EBITDA % Margin EBITDA - CapEx D&A % Margin EBIT % Margin Net Interest Expense Net Income EPS Average Shares Outstanding 2004A $14,223.8 11.2% $1,136.7 8.0% 1,136.7 8.0% 427.0 McOpCo Summary Income Statement $709.7 5.0% 2005E $15,042.4 5.8% $1,085.7 7.2% 562.5 3.7% 575.5 $510.2 3.4% 2006E $15,428.9 2.6% $1,129.6 7.3% 595.6 3.9% 587.4 $542.2 3.5% (90.9) $306.9 $0.24 1,273.7 77 2007E $15,838.3 2.7% $1,173.3 7.4% 628.1 4.0% 599.6 $573.6 3.6% (68.5) $343.5 $0.27 1,273.7 2008E $16,259.2 2.7% $1,218.5 7.5% 662.0 4.1% 609.3 $609.2 3.7% (43.9) $384.4 $0.30 1,273.7 2009E $16,692.0 2.7% $1,265.4 7.6% 697.3 4.2% 622.0 $643.3 3.9% (17.0) $425.9 $0.33 1,273.7 2010E $17,136.9 2.7% $1,313.9 7.7% 734.0 4.3% 635.0 $678.9 4.0% 0.2 $461.8 $0.37 1,248.1 2011E $17,594.4 2.7% $1,364.2 7.8% 772.2 4.4% 645.2 $718.9 4.1% 3.4 $491.2 $0.41 1,191.9 2006 - 2011 CAGR 2.7% 3.8% 5.3% 5.8% 9.9% 11.3%#79C. McOpCo Financial Analysis Set forth below are the summary cash flow projections for McOpCo based on the assumptions detailed on page 76. Cash Flow Data EBITDA less: Cash Taxes less: Cash Interest Expense less: Dividends less: Change in Working Capital less: Growth CapEx less: Maintenance CapEx Free Cash Flow (after dividends) Free Cash Flow per share (before dividends) Balance Sheet Data Cash Revolver Long-Term Debt Total Debt / EBITDA Net Debt / EBITDA McOpCo Summary Cash Flow and Balance Sheet 2004A 2005E 150.0 0.0 1,500.0 1.4x 1.2x 2006E $1,129.6 (145.1) (88.7) 0.0 6.2 (30.0) (504.0) $367.9 $0.29 150.0 0.0 1,132.1 1.0x 0.9x 78 2007E $1,173.3 (163.9) (61.5) 0.0 6.5 (30.6) (514.5) $409.3 $0.32 150.0 0.0 722.8 0.6x 0.5x 2008E $1,218.5 (184.9) (31.4) 0.0 6.7 (31.2) (525.3) $452.5 $0.36 150.0 0.0 270.3 0.2x 0.1x 2009E $1,265.4 (203.9) (6.1) 0.0 7.0 (31.8) (536.2) $494.3 $0.39 150.0 0.0 0.0 0.0x -0.1x 2010E $1,313.9 (218.3) 3.4 0.0 7.2 (32.5) (547.4) $526.3 $0.44 150.0 0.0 0.0 0.0x -0.1x 2011E $1,364.2 (231.1) 3.4 0.0 7.5 (33.1) (558.8) $552.0 $0.49 150.0 0.0 0.0 0.0x -0.1x 2006 - 2011 CAGR 8.5% 11.1%