Explanation

This risk was not identified. The financial statements for McDonald's USA, LLC (McDonald's), audited by Ernst & Young LLP, show a very strong financial position. The company reports billions in revenue and net income for the past three fiscal years, with substantial assets and member's equity. There are no indicators of financial instability, such as a going concern note, that would suggest an inability to support the franchise system.

Potential Mitigations

• Even with strong financials, having your accountant review the statements for trends in revenue sources, like royalties versus franchise fees, is a good practice.
• Ask a business advisor to help you understand the relationship between the franchisor entity and its parent, McDonald's Corporation.
• Legal counsel can help you understand any financial performance guarantees or lack thereof in the Franchise Agreement.

Explanation

This specific risk was not identified based on the provided data. Item 20 tables show a very low rate of terminations, non-renewals, and franchisor re-acquisitions relative to the system's large size, approximately 0.4% in 2024. While the number of transfers is high, the data for negative exits does not suggest a systemic problem with franchisee turnover. However, other FDD sections, like the significant litigation disclosed in Item 3, suggest potential for considerable franchisee-franchisor disputes.

Potential Mitigations

• It is crucial to contact a significant number of current and former franchisees listed in Item 20 to inquire about their experiences and reasons for leaving.
• Your attorney should review the definitions and notes in Item 20 to understand how the franchisor classifies different types of departures.
• A business advisor can help you assess whether the high number of transfers might indicate underlying issues not apparent from the turnover statistics alone.

Explanation

This risk was not identified. While McDonald's projects opening 181 new franchised outlets in the next fiscal year, this represents a growth of only about 1.4% for a mature system with nearly 13,000 units. This rate of expansion does not appear rapid enough to strain the extensive support infrastructure that McDonald's has in place. The system's growth seems measured and controlled.

Potential Mitigations

• A business advisor can help you analyze the projected growth in your specific region to assess potential market saturation.
• When speaking with franchisees, it is useful to ask about the current quality and responsiveness of the franchisor's support team.
• Your accountant can review the franchisor's financials to confirm they have ample resources to support continued, measured expansion.

Explanation

This risk was not identified. McDonald's is one of the oldest, largest, and most established franchise systems in the world. As disclosed in Items 1 and 20, the franchisor and its predecessors have decades of experience operating and franchising thousands of restaurants, which indicates a highly proven and mature business model.

Potential Mitigations

• Despite the system's age, your attorney should review the current Franchise Agreement for any recent changes that may affect you.
• Consult with a business advisor to understand how a mature system's policies on growth and territory may impact a new franchisee.
• An accountant can help you model profitability based on the established, but potentially rigid, cost structure of a mature system.

Explanation

This risk was not identified. The McDonald's quick-service restaurant concept is a globally recognized, long-standing business model that has demonstrated sustained consumer demand for many decades. The business is not dependent on a recent trend or novelty, suggesting a very low risk of it being a fad with limited long-term viability.

Potential Mitigations

• A business advisor can help you research local competition and demographic trends to ensure the McDonald's model is a strong fit for your specific market.
• Review Item 11 with your business advisor to understand how the franchisor continues to innovate and adapt its long-standing model.
• Your accountant can help project the financial resilience of this established business model during various economic cycles.

Explanation

This risk was not identified. Item 2 of the FDD discloses a management team with extensive experience. Most executives and directors have many years, often decades, of experience within the McDonald's system. This indicates a deep familiarity with the business and the franchise model, suggesting a very low risk of management inexperience.

Potential Mitigations

• Even with an experienced team, a business advisor can help you research the recent performance and strategic direction of the company under its current leadership.
• When speaking with franchisees, you can inquire about their direct experiences and the quality of support received from the current management team.
• Your attorney can review any recent changes to the franchise program that may have been implemented by the leadership team.

Explanation

This risk is not applicable. McDonald's USA, LLC is a wholly-owned subsidiary of McDonald's Corporation, a publicly-traded company, not a private equity firm. Therefore, the specific risks associated with a PE firm's typical investment horizon and focus on short-term returns do not apply in this context.

Potential Mitigations

• It is still valuable for your financial advisor to analyze the performance and strategy of the public parent company, McDonald's Corporation.
• Your attorney should review the assignment clauses in the Franchise Agreement to understand how a sale of the company would affect your rights.
• A business advisor can help you stay informed about the company's investor relations and strategic goals, which can influence the franchise system.

Explanation

This risk was not identified. Item 1 clearly discloses that the franchisor, McDonald's USA, LLC, is a wholly-owned subsidiary of McDonald's Corporation. Item 21 further notes this relationship and provides the franchisor's own audited financial statements. The structure is transparent, and there is no failure to disclose a relevant parent company.

Potential Mitigations

• Your attorney can explain the legal relationship between a subsidiary and its parent company and how it might affect your franchise.
• An accountant should review the provided financial statements, keeping in mind that the entity's performance is intertwined with its parent.
• A business advisor can help you research the public filings of McDonald's Corporation for a broader understanding of the overall enterprise.

Explanation

This risk was not identified. Item 1 clearly outlines the history of the franchisor and its predecessor, McDonald's Corporation, dating back to 1955. The disclosure appears to provide a straightforward account of the corporate history, including the formation of the current LLC and the transfer of assets. There are no signs of attempts to obscure a negative history through this disclosure.

Potential Mitigations

• Your attorney should still review the information on the predecessor in conjunction with Items 3 and 4 to ensure a complete picture of historical risks.
• When speaking with long-term franchisees, a business advisor can help you ask about their experiences under the predecessor entity.
• It is always prudent to have legal counsel confirm the corporate history and status of the entities involved.