McDonalds 2009 Annual Report Download - page 26

payments due to the Company from franchisees operating on
leased sites. Based on this calculation, for credit analysis pur-
poses, approximately $4 billion of future operating lease
payments would be capitalized.
Certain of the Company’s debt obligations contain cross-
acceleration provisions and restrictions on Company and subsidiary
mortgages and the long-term debt of certain subsidiaries. There are
no provisions in the Company’s debt obligations that would accel-
erate repayment of debt as a result of a change in credit ratings or
a material adverse change in the Company’s business. Under exist-
ing authorization from the Company’s Board of Directors, at
December 31, 2009, the Company has $5 billion of authority
remaining to borrow funds, including through (i) public or private
offering of debt securities; (ii) direct borrowing from banks or other
financial institutions; and (iii) other forms of indebtedness. In addi-
tion to registered debt securities on a U.S. shelf registration
statement and a Euro Medium-Term Notes program, the Company
has $1.3 billion available under a committed line of credit agree-
ment as well as authority to issue commercial paper in the U.S. and
Euromarket (see Debt financing note to the consolidated financial
statements). Debt maturing in 2010 is approximately $607 million
of long-term corporate debt. In 2010, the Company expects to
issue commercial paper and long-term debt to refinance this matur-
ing debt. The Company also has $599 million of foreign currency
bank line borrowings outstanding at year-end.
Historically, the Company has not experienced difficulty in
obtaining financing or refinancing existing debt. Although there
are continued constraints in the overall financial markets on
available credit, the Company’s ability to raise funding in the long-
term and short-term debt capital markets has not been adversely
affected. In January 2009, the Company issued $400 million of
10-year U.S. Dollar-denominated notes at a coupon rate of 5.0%,
and $350 million of 30-year U.S. Dollar-denominated bonds at a
coupon rate of 5.7%. In June 2009, the Company issued
300 million Euro ($423 million) of 7-year notes at a coupon rate
of 4.25%.
The Company uses major capital markets, bank financings
and derivatives to meet its financing requirements and reduce
interest expense. The Company manages its debt portfolio in
response to changes in interest rates and foreign currency rates
by periodically retiring, redeeming and repurchasing debt, termi-
nating exchange agreements and using derivatives. The
Company does not use derivatives with a level of complexity or
with a risk higher than the exposures to be hedged and does not
hold or issue derivatives for trading purposes. All exchange
agreements are over-the-counter instruments.
In managing the impact of interest rate changes and foreign
currency fluctuations, the Company uses interest rate exchange
agreements and finances in the currencies in which assets are
denominated. The Company uses foreign currency debt and
derivatives to hedge the foreign currency risk associated with
certain royalties, intercompany financings and long-term invest-
ments in foreign subsidiaries and affiliates. This reduces the
impact of fluctuating foreign currencies on cash flows and
shareholders’ equity. Total foreign currency-denominated debt
was $4.5 billion for the years ended December 31, 2009 and
2008. In addition, where practical, the Company’s restaurants
purchase goods and services in local currencies resulting in natu-
ral hedges. See Summary of significant accounting policies note
to the consolidated financial statements related to financial
instruments and hedging activities for additional information
regarding the accounting impact and use of derivatives.
The Company does not have significant exposure to any
individual counterparty and has master agreements that contain
netting arrangements. Certain of these agreements also require
each party to post collateral if credit ratings fall below, or
aggregate exposures exceed, certain contractual limits. At
December 31, 2009, neither the Company nor its counterparties
were required to post collateral on any derivative position, other
than on hedges of certain of the Company’s supplemental benefit
plan liabilities where our counterparty was required to post
collateral on its liability position.
The Company’s net asset exposure is diversified among a
broad basket of currencies. The Company’s largest net asset
exposures (defined as foreign currency assets less foreign cur-
rency liabilities) at year end were as follows:
Foreign currency net asset exposures
In millions of U.S. Dollars 2009 2008
Euro $ 5,151 $4,551
Australian Dollars 1,460 1,023
Canadian Dollars 981 795
British Pounds Sterling 679 785
Russian Ruble 501 407
The Company prepared sensitivity analyses of its financial
instruments to determine the impact of hypothetical changes in
interest rates and foreign currency exchange rates on the
Company’s results of operations, cash flows and the fair value of
its financial instruments. The interest rate analysis assumed a
one percentage point adverse change in interest rates on all
financial instruments but did not consider the effects of the
reduced level of economic activity that could exist in such an
environment. The foreign currency rate analysis assumed that
each foreign currency rate would change by 10% in the same
direction relative to the U.S. Dollar on all financial instruments;
however, the analysis did not include the potential impact on
revenues, local currency prices or the effect of fluctuating
currencies on the Company’s anticipated foreign currency royal-
ties and other payments received in the U.S. Based on the results
of these analyses of the Company’s financial instruments, neither
a one percentage point adverse change in interest rates from
2009 levels nor a 10% adverse change in foreign currency rates
from 2009 levels would materially affect the Company’s results
of operations, cash flows or the fair value of its financial instru-
ments.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The Company has long-term contractual obligations primarily in
the form of lease obligations (related to both Company-operated
and franchised restaurants) and debt obligations. In addition, the
Company has long-term revenue and cash flow streams that
relate to its franchise arrangements. Cash provided by operations
(including cash provided by these franchise arrangements) along
with the Company’s borrowing capacity and other sources of
cash will be used to satisfy the obligations. The following table
summarizes the Company’s contractual obligations and their
aggregate maturities as well as future minimum rent payments
due to the Company under existing franchise arrangements as of
24 McDonald’s Corporation Annual Report 2009