McDonalds 2009 Annual Report Download - page 43

Net deferred tax liabilities consisted of:
In millions December 31, 2009 2008
Property and equipment $ 1,609.4 $ 1,587.5
Other 419.1 308.1
Total deferred tax
liabilities 2,028.5 1,895.6
Property and equipment (287.7) (243.4)
Employee benefit plans (311.0) (300.9)
Intangible assets (289.3) (227.8)
Deferred foreign tax credits (152.8) (131.1)
Capital loss carryforwards (50.9) (161.9)
Operating loss
carryforwards (65.7) (70.9)
Indemnification liabilities (43.5) (49.6)
Other (334.3) (462.3)
Total deferred tax assets
before valuation
allowance (1,535.2) (1,647.9)
Valuation allowance 118.1 199.7
Net deferred tax liabilities $ 611.4 $ 447.4
Balance sheet presentation:
Deferred income taxes $ 1,278.9 $ 944.9
Other assets–
miscellaneous (541.2) (417.4)
Current assets–prepaid
expenses and other
current assets (126.3) (80.1)
Net deferred tax liabilities $ 611.4 $ 447.4
The statutory U.S. federal income tax rate reconciles to the
effective income tax rates as follows:
2009 2008 2007
Statutory U.S. federal income tax
rate 35.0% 35.0% 35.0%
State income taxes, net of related
federal income tax benefit 1.6 1.8 2.3
Benefits and taxes related to
foreign operations (6.3) (6.4) (7.5)
Completion of federal tax audit (8.9)
Latam transaction 14.3
Other, net (0.5) (0.4) (0.6)
Effective income tax rates 29.8% 30.0% 34.6%
As of December 31, 2009 and 2008, the Company’s gross
unrecognized tax benefits totaled $492.0 million and
$272.5 million, respectively. After considering the deferred tax
accounting impact, it is expected that about $330 million of the
total as of December 31, 2009 would favorably affect the effec-
tive tax rate if resolved in the Company’s favor.
The following table presents a reconciliation of the beginning
and ending amounts of unrecognized tax benefits:
In millions 2009 2008
Balance at January 1 $272.5 $249.7
Decreases for positions taken in prior years (16.4) (21.8)
Increases for positions taken in prior years 21.8 25.0
Increases for positions related to the
current year
Increases with deferred tax offset 83.9 7.7
Other increases 178.0 58.2
Settlements with taxing authorities (20.8) (39.5)
Lapsing of statutes of limitations (27.0) (6.8)
Balance at December 31(1)(2) $492.0 $272.5
(1) This balance is before consideration of the deferred tax accounting offsets.
(2) Of the 2009 balance, $285.6 million is included in other long-term liabilities and
$206.4 million is included in deferred income taxes on the Consolidated balance
sheet. The 2008 balance is included in other long-term liabilities on the Consolidated
balance sheet.
It is reasonably possible that the total amount of unrecog-
nized tax benefits could decrease within the next 12 months by
$40 million to $90 million. This decrease would result from the
expiration of the statute of limitations and the completion of tax
audits in multiple tax jurisdictions.
The Company is generally no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax
authorities for years prior to 2003.
The continuing practice of the Company is to recognize inter-
est and penalties related to income tax matters in the provision for
income taxes. The Company had $18.7 million and $24.1 million
accrued for interest at December 31, 2009 and 2008,
respectively, and no accrual for penalties in either year. The
Company recorded interest expense related to tax matters of
$1.5 million in 2009 and $13.7 million in 2008 and interest
income related to tax matters of $34.9 million in 2007, and no
expense for penalties in any of the three years.
Deferred U.S. income taxes have not been recorded for
temporary differences related to investments in certain foreign
subsidiaries and corporate joint ventures. These temporary
differences were approximately $9.2 billion at December 31,
2009 and consisted primarily of undistributed earnings consid-
ered permanently invested in operations outside the U.S.
Determination of the deferred income tax liability on these
unremitted earnings is not practicable because such liability, if
any, is dependent on circumstances existing if and when
remittance occurs.
McDonald’s Corporation Annual Report 2009 41