their obligations under the franchise agreements (at fair market value determined in the manner provided in the franchise agreements) or sell their McDonald's franchise within 24 months
after the relevant triggering event. If our franchisees don't sell either franchise within the 24-month period, their franchise agreements with McDonald's will terminate automatically.
At September 30, 2005, we had about 12,200 employees, including 1,200 salaried employees and 11,000 hourly employees. None of our employees are
unionized or covered by a collective bargaining agreement.
Our main office is located at 1543 Wazee Street, Suite 200, Denver, Colorado, and our telephone number is (303) 595-4000. As of
October 31, 2005, there were 459 company-operated and eight franchised stores in locations across the United States. See "Quality, Not Quantity: Store Locations."
lease our main office and substantially all of the properties on which we operate stores. For additional information regarding the lease terms and provisions, see "Management's
Discussion and Analysis of Financial Condition and Results of OperationsContractual Obligations."
own nine properties and operate stores on all of them.
We're involved in various claims and legal actions that arise in the ordinary course of business. We do not believe that the ultimate resolution of these actions
will have a material adverse effect on our financial position, results of operations, liquidity or capital resources. However, a significant increase in the number of these claims or an increase in
amounts owing under successful claims could materially and adversely affect our business, financial condition, results of operation and cash flows.
In addition, we're involved in claims relating to the possible theft of our customers' credit and debit card data. To date, we have received claims through the acquiring bank with
respect to fewer than 2,000 purportedly fraudulent credit and debit card charges allegedly arising out of this matter in an aggregate amount of about $1.2 million. We've also incurred
$1.3 million of expense in connection with fines imposed by the Visa and MasterCard card associations on the acquiring bank. In 2004, we recorded charges of $4.0 million to establish a
reserve for claims seeking reimbursement for purportedly fraudulent credit and debit card charges, the cost of replacing cards, monitoring expenses and fees, and fines imposed by Visa and MasterCard.
All of the reimbursement claims are being disputed, although we've not formally protested all of the charges. At November 30, 2005, after charging these expenses against the reserve, the
remaining reserve was $1.9 million, which does not take into account a fine of $0.4 million assessed by MasterCard in December 2005 that we expect to charge against that reserve. In
addition to the reserve, we've also incurred about $1.5 million of additional expenses in this matter, including $1.3 million for legal fees, bringing our total expense relating to this
matter to $5.5 million. We have not reserved any additional amounts to date in 2005.
may in the future become subject to additional claims for purportedly fraudulent transactions arising out of this matter. We have no way to predict the level of claims or the number
or nature of
proceedings that may be asserted against us, nor can we quantify the costs that we may incur in connection with investigating, responding to and defending any of them. If we litigate these matters, we
may not be able to defend against penalties successfully. The ultimate outcome of this matter could differ materially from the amounts we've recorded in our reserve and could have a material adverse
effect on our financial results and condition. See "Risk FactorsRisks Related to Our Business and IndustryWe may have experienced a security breach with respect to certain
customer credit and debit card data, and we've incurred and may continue to incur substantial costs as a result of this matter. We may also incur costs resulting from other security risks we may face
in connection with our electronic processing and transmission of confidential customer information."