McDonalds 2014 Annual Report Download - page 13

McDonald’s Corporation 2014 Annual Report 7
be required to record impairment charges. If we experience any
such changes, they could have a significant effect on our reported
results for the affected periods.
A decrease in our credit ratings or an increase in our funding
costs could adversely affect our profitability.
We may be negatively affected by the impact of changes in
our debt levels or our results of operations on our credit ratings,
interest expense, availability of acceptable counterparties, ability
to obtain funding on favorable terms or our operating or financial
flexibility, especially if lenders impose new operating or financial
covenants. Our operations may also be impacted by regulations
affecting capital flows, financial markets or financial institutions,
which can limit our ability to manage and deploy our liquidity or
increase our funding costs. If any of these events were to occur,
they could have a material adverse effect on our business and
financial condition.
Trading volatility and price of our common stock may be
affected by many factors.
Many factors affect the volatility and price of our common
stock in addition to our operating results and prospects. The most
important of these, some of which are outside our control, are the
following:
The continuing unpredictable global economic and market
conditions;
Governmental action or inaction in light of key indicators of
economic activity or events that can significantly influence
financial markets, particularly in the United States which is
the principal trading market for our common stock, and
media reports and commentary about economic or other
matters, even when the matter in question does not directly
relate to our business;
Trading activity in our common stock or trading activity in
derivative instruments with respect to our common stock or
debt securities, which can be affected by market commentary
(including commentary that may be unreliable or incomplete);
unauthorized disclosures about our performance, plans or
expectations about our business; our actual performance and
creditworthiness; investor confidence generally; actions by
shareholders and others seeking to influence our business
strategies; portfolio transactions in our stock by significant
shareholders; or trading activity that results from the ordinary
course rebalancing of stock indices in which McDonald’s may
be included, such as the S&P 500 Index and the Dow Jones
Industrial Average;
The impact of our stock repurchase program or dividend rate;
and
The impact on our results of other corporate actions, such as
those we may take from time to time as part of our
continuous review of our corporate structure in light of
business, legal and tax considerations.
Our results and prospects can be adversely affected by
events such as severe weather conditions, natural disasters,
hostilities and social unrest, among others.
Severe weather conditions, natural disasters, hostilities and
social unrest, terrorist activities, health epidemics or pandemics
(or expectations about them) can adversely affect consumer
spending and confidence levels or other factors that affect our
results and prospects, such as commodity costs. Our receipt of
proceeds under any insurance we maintain with respect to certain
of these risks may be delayed or the proceeds may be insufficient
to offset our losses fully.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
The Company owns and leases real estate primarily in connection
with its restaurant business. The Company identifies and develops
sites that offer convenience to customers and long-term sales and
profit potential to the Company. To assess potential, the Company
analyzes traffic and walking patterns, census data and other
relevant data. The Company’s experience and access to
advanced technology aid in evaluating this information. The
Company generally owns the land and building or secures long-
term leases for restaurant sites, which ensures long-term
occupancy rights and helps control related costs. Restaurant
profitability for both the Company and franchisees is important;
therefore, ongoing efforts are made to control average
development costs through construction and design efficiencies,
standardization and by leveraging the Company’s global sourcing
network. Additional information about the Company’s properties is
included in Management’s discussion and analysis of financial
condition and results of operations in Part II, Item 7, pages
12 through 28 and in Financial statements and supplementary
data in Part II, Item 8, pages 28 through 45 of this Form 10-K.
ITEM 3. Legal Proceedings
The Company has pending a number of lawsuits that have been
filed in various jurisdictions. These lawsuits cover a broad variety
of allegations spanning the Company’s entire business. The
following is a brief description of the more significant types of
lawsuits. In addition, the Company is subject to various federal,
state and local regulations that impact various aspects of its
business, as discussed below. While the Company does not
believe that any such claims, lawsuits or regulations will have a
material adverse effect on its financial condition or results of
operations, unfavorable rulings could occur. Were an unfavorable
ruling to occur, there exists the possibility of a material adverse
impact on net income for the period in which the ruling occurs or
for future periods.
Franchising
A substantial number of McDonald’s restaurants are franchised to
independent owner/operators under contractual arrangements
with the Company. In the course of the franchise relationship,
occasional disputes arise between the Company and its
franchisees relating to a broad range of subjects including, but not
limited to, quality, service and cleanliness issues, contentions
regarding grants or terminations of franchises, delinquent
payments of rents and fees, and franchisee claims for additional
franchises or rewrites of franchises. Additionally, occasional
disputes arise between the Company and individuals who claim
they should have been granted a McDonald’s franchise.
Suppliers
The Company and its affiliates and subsidiaries generally do not
supply food, paper or related items to any McDonald’s restaurants.
The Company relies upon numerous independent suppliers,
including service providers, that are required to meet and maintain
the Company’s high standards and specifications. On occasion,
disputes arise between the Company and its suppliers (or former
suppliers) which include, by way of example, compliance with
product specifications and the Company’s business relationship
with suppliers. In addition, disputes occasionally arise on a
number of issues between the Company and individuals or entities