McDonalds 2015 Annual Report Download - page 45

McDonald's Corporation 2015 Annual Report 43
Company to reassess the total amount of unrecognized tax
benefits recorded. While the Company cannot estimate the impact
that new information may have on our unrecognized tax benefit
balance, we believe that the liabilities recorded are appropriate
and adequate as determined under ASC 740.
The Company operates within multiple tax jurisdictions and is
subject to audit in these jurisdictions. With few exceptions, the
Company is no longer subject to U.S. federal, state and local, or
non-U.S. income tax examinations for years before 2009.
The Company had $83.6 million and $119.0 million accrued
for interest and penalties at December 31, 2015 and 2014,
respectively. The Company recognized interest and penalties
related to tax matters of $21.1 million in 2015, $87.9 million in
2014, and $14.4 million in 2013, which are included in the
provision for income taxes.
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 $14.9 billion at December 31,
2015 and consisted primarily of undistributed earnings considered
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.
Employee Benefit Plans
The Company’s Profit Sharing and Savings Plan for U.S.-based
employees includes a 401(k) feature, a regular employer match,
and a discretionary employer match. The 401(k) feature allows
participants to make pre-tax contributions that are matched each
pay period from shares released under the leveraged Employee
Stock Ownership Plan ("ESOP") and employer cash contributions.
The Profit Sharing and Savings Plan also provides for a
discretionary employer match after the end of the year for match-
eligible participants.
All current account balances, future contributions and related
earnings can be invested in eleven investment alternatives as well
as McDonald’s stock in accordance with each participant’s
investment elections. Future participant contributions are limited to
20% investment in McDonald’s stock. Participants may choose to
make separate investment choices for current account balances
and future contributions.
The Company also maintains certain nonqualified
supplemental benefit plans that allow participants to (i) make tax-
deferred contributions and (ii) receive Company-provided
allocations that cannot be made under the Profit Sharing and
Savings Plan because of IRS limitations. The investment
alternatives and returns are based on certain market-rate
investment alternatives under the Profit Sharing and Savings Plan.
Total liabilities were $487.6 million at December 31, 2015, and
$534.0 million at December 31, 2014, and were primarily included
in other long-term liabilities on the Consolidated balance sheet.
The Company has entered into derivative contracts to hedge
market-driven changes in certain of the liabilities. At December 31,
2015, derivatives with a fair value of $139.9 million indexed to the
Company's stock and a total return swap with a notional amount of
$180.6 million indexed to certain market indices were included at
their fair value in Miscellaneous other assets and Prepaid
expenses and other current assets, respectively, on the
Consolidated balance sheet. Changes in liabilities for these
nonqualified plans and in the fair value of the derivatives are
recorded primarily in Selling, general & administrative expenses.
Changes in fair value of the derivatives indexed to the Company’s
stock are recorded in the income statement because the contracts
provide the counterparty with a choice to settle in cash or shares.
Total U.S. costs for the Profit Sharing and Savings Plan,
including nonqualified benefits and related hedging activities, were
(in millions): 2015–$24.0; 2014–$29.1; 2013–$21.9. Certain
subsidiaries outside the U.S. also offer profit sharing, stock
purchase or other similar benefit plans. Total plan costs outside
the U.S. were (in millions): 2015–$53.4; 2014–$54.4; 2013–$51.2.
The total combined liabilities for international retirement plans
were $76.0 million and $74.7 million at December 31, 2015 and
2014, respectively. Other post-retirement benefits and post-
employment benefits were immaterial.