NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 1 - DESCRIPTION OF PLAN
General
: The McDonalds Corporation Profit Sharing and Savings Plan (the Plan) was amended and restated in its entirety as of January 1, 2015.
The Plan has been amended two times subsequent to this date, on December 10, 2015 and September 9, 2016.
The Plan is administered by a
committee of officers (Administrative Committee) appointed by the Chief Executive Officer of McDonalds Corporation (the Company or McDonalds). Effective January 1, 2016 Fiduciary Counselors oversees the McDonalds Common Stock
Fund and the McDonalds ESOP Stock Fund under the Plan. Participants should refer to the Summary Plan Description and Prospectus for a complete description and
up-to-date
information.
Eligibility
: In order to participate in
the 401(k) feature of the Plan, all eligible employees must be at least 21 years of age, have a valid Social Security number, and be on the U.S. payroll of the Company or a participating employer. The term Company includes
McDonalds Corporation and all participating employers in describing eligibility and contributions below.
Restaurant management employees and staff
employees (including part-time staff employees) are eligible to make 401(k) contributions, up to 50% of eligible compensation, beginning the first day of the month after completing one full calendar month of employment. All other employees are
eligible to make 401(k) contributions after one year of eligibility service as defined by the Plan document. Restaurant management employees, who are not contributing to the Plan, are enrolled automatically at a 1% contribution level as soon as they
have completed one year of service and attained age 21. Matching contributions are provided to eligible employees after one year of eligibility service as defined by the Plan document.
Contributions
: Each year, participants may contribute up to 50% of their eligible
pre-tax
annual compensation,
as defined by the Plan subject to Internal Revenue Service (the IRS) annual limits. Highly compensated employees under IRS rules are not able to make 401(k) contributions in their second calendar year of employment until the first of the month on or
after they complete one anniversary year with at least 1,000 hours of service under the Plan.
Participants who have attained age 50 before the end of the
Plan year are eligible to make
catch-up
contributions subject to IRS limits, and in addition, may contribute more than 50% if payroll tax and other withholding requirements are met. In accordance with Plan
procedures, participants may roll over money into the Plan if it is from a: Qualified Plan, Section 403(b)
tax-sheltered
annuity plan, Section 457 deferred compensation plan of a state or local government
entity, SIMPLE 401(k) plan, Section 403(a) annuity plan, Traditional IRA, SIMPLE IRA with at least two years participation, IRA set up to receive a distribution from an eligible employer plan or Federal thrift plan under section 7701(j).
Participants direct the investment of their contributions and Company contributions into various investment options offered by the Plan. The investment funds
under the Plan are Stable Value Fund, Intermediate Bond Fund, Global Bond Fund, Blended Stock/Bond Fund, Diversified Stock Fund, S&P 500 Index Fund, International Stock Fund, International Stock Index Fund, Real Estate Securities Fund, Small Cap
Index Fund, Aggressive Stock Fund, McDonalds Common Stock Fund, and the McDonalds ESOP Stock Fund. No more than 20% of a participants future 401(k) contributions may be invested in the McDonalds Common Stock Fund.
The Company matches (after one year of eligibility service and attainment of age 21) 300% of the first 1% of eligible compensation (as defined by the Plan)
and 100% of the next 4% of eligible compensation that a participant contributes to the Plan. ESOP shares, to the extent available, are used to make matching contributions.
(Continued)
5.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 1 - DESCRIPTION OF PLAN
(Continued)
A discretionary profit-sharing match may be contributed at the option of the Compensation Committee of the
Board of Directors of the Company (the Board). For the year ended December 31, 2015, the Board approved a 2% discretionary profit sharing match to the Plan. The discretionary match was contributed after the end of the year, and allocated to
participants eligible to share in matching contributions based on participant 401(k) contributions up to 1% of eligible compensation. For 2016, there was no discretionary match.
Participant Accounts
: Participants can elect, on a daily basis, to have their account balances, as well as future deferrals and Company contributions,
invested in 1% increments in one or any combination of the Plans investment funds, including Company stock. A participant may change how his/her existing account balance is invested at any time, but a participant may not transfer any amount
into and out of the same fund more than two times within any rolling
90-day
period. Participants are always able to transfer out of any fund into the Stable Value Fund even if they exceed this limit. For
participants who are automatically enrolled, all contributions to the plan, both participant and company contributions, are invested in the Blended Stock/Bond Fund and after 30 days are managed by Guided Choice, a managed account provider, unless
the participant makes an investment election.
Each participants account is credited with the participants contribution and allocations of
(a) the Companys matching contribution and discretionary profit sharing match (if any) and (b) Plan earnings, and charged with an allocated portion of investment expenses. Allocations are based on participant earnings or account
balances as defined in the Plan.
Leveraged Employee Stock Ownership Plan (Leveraged ESOP)
: In September 1989, the Leveraged ESOP borrowed
$200 million and used the proceeds of the loan to purchase 27,826,084 shares of McDonalds Series B Convertible Preferred Stock. The Preferred shares were redeemed by the Company for Common Stock in 1992 and 1995. In April 1991, the
leveraged ESOP borrowed $100 million to purchase 12,075,468 shares of McDonalds Series C Convertible Preferred Stock, which were redeemed by the Company for Common Stock in 1995.
The Company is required to make sufficient cash contributions to the Plan to pay the principal and interest on the loans. Released ESOP shares are used to
make matching Company allocations. The ESOP shares allocated to participant accounts are held by The Northern Trust Company (Northern Trust), the trustee of the Plan (Trustee). The unallocated ESOP shares are also held at Northern Trust as
collateral for loans from the Company to the Plan. Unallocated ESOP dividends are invested in an interest-bearing account until the note payment is due. In 1999, the Leveraged ESOP loans were refinanced as discussed in Note 5, so that the last
loan payment and allocation of ESOP Common Stock will occur in 2018.
During 2016, 231,479 shares were released from the unallocated ESOP shares with a
fair value of approximately $28,051,000.
Vesting
: All participants accounts under the Plan are 100% vested.
Diversification
: All participants can elect to fully diversify all accounts in the Plan.
Loans
: Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested
balance reduced by the participants highest outstanding loan balance during the preceding
12-month
period. All loans are currently subject to a $75 processing fee. Loan terms range from 12 months up to
4.5 years. Participants may not have more than one loan from the Plan outstanding at any time. The loans are secured by the balance in the participants account and bear interest based on the prime rate in effect on the first day of the month
in which the loan is requested, plus 1%. Principal and interest are paid ratably through payroll deductions.
(Continued)
6.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 1 - DESCRIPTION OF PLAN
(Continued)
Qualified Domestic Relations Orders (QDROs):
QDROs received on or after January 1, 2016 will
undergo a QDRO review and will be charged a processing fee of $550 for each QDRO. The $550 fee will be subtracted from the divorced participants account unless the QDRO states the fee is to be split between the participant and the alternate
payee.
Payment of Benefits
: Participants who terminate their employment with the Company and all other companies or entities that are owned or
controlled 80% or more by the Company are entitled to receive the balance in their Plan accounts within a reasonable time following their termination. A terminated participant with benefits in excess of $1,000 will not receive a distribution from
the Plan until age 70
1
⁄
2
unless an earlier distribution is elected.
Such accounts will continue to share in the allocation of investment income, and accounts will continue to be invested in accordance with the
participants investment elections (See Note 1, Contributions). Distributions may be in the form of a lump sum or installment payments or a combination of lump sum and installment payments.
Participants who terminate employment after satisfying the requirements to make deferrals and are subsequently rehired can resume making deferrals as soon as
administratively feasible.
Forfeitures
: Amounts unclaimed for two years are considered forfeitures. These forfeitures, resulting from unclaimed
amounts, are used to make a portion of the Company contribution.
In-Service
Withdrawals
: Participants 59
1
⁄
2
or older and terminated participants may withdraw all or any part of their account balances under the Plan at any time. Participants may also withdraw up to
100% of their ESOP, Profit Sharing, Investment Savings, Stock Sharing, and Rollover accounts at any time.
Pass Through Dividend Election
:
Participants may choose whether dividends earned on shares of McDonalds common stock will be paid directly to them in cash or reinvested in their accounts in McDonalds stock.
Voting
: Participants may direct the Trustee to vote shares of McDonalds stock credited to their accounts as well as those shares not voted by
other participants and unallocated shares held in the ESOP feature of the Plan.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
: The financial statements of the Plan are prepared on the accrual basis of accounting.
Use of Estimates
: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires the Administrative Committee to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those
estimates.
(Continued)
7.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment Valuation
: Other than fully benefit-responsive investment contracts which are valued at
contract value, the Plans investments are reported at fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend
date.
Fair value is the price that would be received by the Plan for an asset or paid by the Plan to
transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date in the Plans principal or most advantageous market for the asset or liability. Fair value measurements are determined by
maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value. The hierarchy places the highest priority on unadjusted quoted market prices in active markets for identical assets or liabilities
(level 1 measurements) and gives the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs within the fair value hierarchy are defined as follows:
|
|
|
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Plan has the ability to access as of the measurement date.
|
|
|
|
Level 2: Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data.
|
|
|
|
Level 3: Significant unobservable inputs that reflect the Plans own assumptions about the assumptions that market participants would use in pricing an asset or liability.
|
In some cases, a valuation technique used to measure fair value may include inputs from multiple levels of the fair value hierarchy. The lowest level of
significant input determines the placement of the entire fair value measurement in the hierarchy.
The following are descriptions of the valuation methods
and assumptions used for investments of the Plan.
Cash:
Interest Bearing Cash held at Northern Trust is valued at quoted market prices (level 1
inputs).
U.S. Treasury securities
: Fair values of U.S. Treasury bonds reflect the closing price reported in the active market in which the
security is traded (level 1 inputs).
Mortgage-backed securities
: Mortgage-backed securities (MBS) are types of asset-backed securities that are
secured by a mortgage, or more commonly a collection (pool) of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that securitizes, or packages, the loans together into a
security that can be sold to investors. The mortgages of MBS may be residential or commercial, depending on whether it is an Agency MBS or a
Non-Agency
MBS. The structure of an MBS may be known as
pass-through, where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs. Other types of MBS include collateralized mortgage
obligations (CMOs, often structured as real estate mortgage investment conduits) and collateralized debt obligations (CDOs). These are classified within level 2 of the fair value hierarchy. Fair value is estimated based on models that consider
the estimated cash flows of each debt tranche of the issuer, establish a benchmark yield, and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche including, but not limited to, the
prepayment speed assumptions and attributes of the collateral.
(Continued)
8.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Corporate bonds
: Corporate bonds are debt securities issued by corporations and sold to investors and
are valued using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads. When observable price quotations are not available, fair value is determined based on cash flow models with
yield curves, bond, or single-name credit default swap spreads and recovery rates based on collateral values as key inputs. Corporate bonds are categorized within level 2 of the fair value hierarchy.
Mutual funds:
The fair values of mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are
open-end
mutual funds that are registered with the Securities and Exchange Commission (level 1 inputs). These funds are required to publish their daily net asset value (NAV) and to transact at that
price. The mutual funds held by the Plan are deemed to be actively traded.
American Depository Receipts, Common Stocks including McDonalds
common stock
: The fair values of American Depository Receipts (ADR) and publicly traded common stocks are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs).
Collective trusts
: The fair values of investments in collective trusts are valued as determined by the custodian based on their net asset values and
recent transaction prices. The investment objectives and underlying investments of the collective trusts vary, with some holding short term investments for principal preservation, diversified portfolios of domestic or international stocks, some
holding securities of companies in a particular industry sectors, some holding short-term and/or medium-term corporate, government and government agency bonds, some holding a blend of asset back securities and corporate bonds, and others holding a
blend of various domestic and international stocks. Each collective trust provides for daily redemptions by the Plan at reported net asset values per share, with no advance notice requirement.
(Continued)
9.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Investments measured at fair value on a recurring basis as of December 31, 2016 and 2015 are summarized
below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Investment Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury Securities
|
|
$
|
18,927
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,927
|
|
Mortgage backed securities
|
|
|
|
|
|
|
23,184
|
|
|
|
|
|
|
|
23,184
|
|
Corporate bonds
|
|
|
|
|
|
|
12,150
|
|
|
|
|
|
|
|
12,150
|
|
Mutual Funds
|
|
|
242,101
|
|
|
|
|
|
|
|
|
|
|
|
242,101
|
|
ADR & Common stock, other than McDonalds Corp.
|
|
|
213,909
|
|
|
|
|
|
|
|
|
|
|
|
213,909
|
|
McDonalds Corp common stock
|
|
|
1,242,901
|
|
|
|
|
|
|
|
|
|
|
|
1,242,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
|
|
1,717,838
|
|
|
|
35,334
|
|
|
|
|
|
|
|
1,753,172
|
|
|
|
|
|
|
Investments measured at net asset value (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
928,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
1,717,838
|
|
|
$
|
35,334
|
|
|
$
|
|
|
|
$
|
2,681,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Investment Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
US Treasury securities
|
|
|
20,978
|
|
|
|
|
|
|
|
|
|
|
|
20,978
|
|
Mortgage backed securities
|
|
|
|
|
|
|
24,985
|
|
|
|
|
|
|
|
24,985
|
|
Corporate bonds
|
|
|
|
|
|
|
11,104
|
|
|
|
|
|
|
|
11,104
|
|
Mutual Funds
|
|
|
227,659
|
|
|
|
|
|
|
|
|
|
|
|
227,659
|
|
ADR & Common stock, other than McDonalds Corp
|
|
|
307,420
|
|
|
|
|
|
|
|
|
|
|
|
307,420
|
|
McDonalds Corp common stock
|
|
|
1,296,957
|
|
|
|
|
|
|
|
|
|
|
|
1,296,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
|
|
1,853,016
|
|
|
|
36,089
|
|
|
|
|
|
|
|
1,889,105
|
|
|
|
|
|
|
Investments measured at net asset value (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
831,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
1,853,016
|
|
|
$
|
36,089
|
|
|
$
|
|
|
|
$
|
2,720,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In accordance with Subtopic
820-10,
certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the statement of net assets available for benefits.
|
(Continued)
10.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Participant Loans
: Participant loans are reported at their unpaid principal balance plus any accrued
but unpaid interest, with no allowance for credit losses, as repayments of principal and interest are received through payroll deductions and the notes are collateralized by the participants account balances.
Fair Value of Long-Term Debt
: The fair value of the Plans long-term debt is estimated based on the current rates available to the Plan for debt
of the same remaining maturities (level 2). As of December 31, 2016, the estimated fair value and carrying value of the Plans long-term debt was $5,554,000 and $5,142,000 respectively. As of December 31, 2015, the estimated fair
value and carrying value of the Plans long-term debt was $10,145,000 and $9,233,000, respectively.
Unallocated Net Assets Available for
Benefits
:
Unallocated net assets available for benefits represents the fair value of shares of McDonalds common stock purchased through the ESOP which have not been released for allocation to participants accounts offset by
the balance of the debt issued by the ESOP. Unallocated net assets available for benefits are reduced by the fair value of the shares as they are allocated to participants as Company matching contributions.
Payment of Benefits
:
Benefits are recorded at the time of payment.
NOTE 3 FULLY BENEFIT RESPONSIVE INVESTMENT CONTRACTS
The Plan investments include a Stable Value Fund, managed by JPMorgan, which is a unitized fund established solely for the investment of assets of the Plan.
The account is credited with earnings on the underlying investments and charged for Plan withdrawals and administrative expenses. The Stable Value Fund holds synthetic guaranteed investment contracts, with collective funds, US treasuries, mortgage
backed securities, corporate bonds and short-term investments as underlying investments. These synthetic investment contracts are included in the financial statements at contract value. Contract value represents contributions made under the
contracts, plus earnings, less participant withdrawals and administrative expenses.
The wrapper contracts within the Stable Value Fund specify certain
conditions under which distributions from the contracts would be payable at amounts below contract value. Such circumstances include the termination of the Plan, a material adverse change to the provisions of the Plan, if the employer elects to
withdraw from a wrapper contract in order to switch to a different investment provider, or if the terms of a successor plan (in the event of the
spin-off
or sale of a division) do not meet the wrapper contract
issuers underwriting criteria for issuance of a clone wrapper contract. The contracts limit the circumstances under which the issuer may terminate the contracts. Examples of circumstances which would allow the issuer to terminate the contracts
include the Plans loss of its qualified status,
un-cured
material breaches of responsibilities, or material and adverse changes to the provisions of the Plan. If one of these events were to occur, the
issuer could terminate the contracts at the market value of the underlying investments. Currently, the occurrence of an event that would cause the Plan to transact contract distributions at less than contract value is not probable.
The crediting interest rates of the contracts are based on agreed-upon formulas with the issuers, as defined in the contract agreements, but cannot be less
than zero. The interest rates are reviewed on a quarterly basis for resetting. The key factors that influence future interest crediting rates could include the following: the level of market interest rates; the amount and timing of participant
contributions; transfers and withdrawals into/out of the contracts; and the duration of the underlying investments backing the contracts.
NOTE 4 -
NONPARTICIPANT-DIRECTED INVESTMENTS
The nonparticipant directed net assets of the Plan and changes therein consist of those reflected in the financial
statements as ESOP Unallocated Account.
(Continued)
11.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 5 - NOTES PAYABLE
In September 1989, the Leveraged ESOP issued $200 million of 7.67% Guaranteed ESOP Notes, Series A, for 15 years with a final maturity of
September 15, 2004. In April 1991, the Leveraged ESOP issued $100 million of 7.30% Guaranteed ESOP Notes, Series B, for 15 years with a final maturity of June 1, 2006. In November 1999, the Leveraged ESOP refinanced the outstanding
debt for 19 years with a final maturity of July 15, 2018. The remaining outstanding ESOP Notes are loans directly between the ESOP and the Company. Principal and interest payments are made according to the applicable loan schedules. Dividends
on the converted common stock and Company contributions are used to repay the loans.
The ESOP debt is collateralized by unallocated shares of
McDonalds common stock, valued at $33,757,320 at December 31, 2016. The Company has no recourse against the assets of the ESOP, except for such collateralized shares, cash contributions to ESOP, and earnings attributable to such
collateralized shares or contributions. The unallocated shares of McDonalds common stock may be released from collateral under certain circumstances without the consent of the Company.
Following are maturities of the ESOP debt for each of the next two years (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Series B
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Total
|
|
2017
|
|
$
|
1,962
|
|
|
$
|
988
|
|
|
$
|
2,950
|
|
2018
|
|
|
1,458
|
|
|
|
734
|
|
|
|
2,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total over remaining life of notes
|
|
$
|
3,420
|
|
|
$
|
1,722
|
|
|
$
|
5,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 - PLAN TERMINATION
Although it has not expressed any intent to do so, the McDonalds Corporation has the right under the Plan to allow an employer to discontinue its
contributions at any time and the Company may terminate the Plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
NOTE 7 - ADMINISTRATIVE FEES
The investment management
and advisory fees applicable to each investment fund are netted against the related investment income before investment income is allocated to participants accounts. Fees for managed account services provided by an independent
third-party are
charged directly to participant accounts only for individuals that use this service. Revenue sharing received from investments in mutual funds is returned to participants invested in those
funds. Administrative fees associated with the Plan are paid by the Company.
NOTE 8 - INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by letter dated September 24, 2013, that the Plan and related trust are designed,
including amendments adopted through October 18, 2012, in accordance with applicable sections of the Internal Revenue Code (IRC). Although the Plan has been amended and restated, effective January 1, 2015, plan management believes that the
Plan is designed and being operated in compliance with the applicable requirements of the IRC. Therefore, they continue to believe that the Plan is qualified and the related trust was
tax-exempt
as of the
financial statement date.
(Continued)
12.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 8 - INCOME TAX STATUS (Continued)
Accounting principles generally accepted in the United States of America require plan management to evaluate
tax positions taken by the Plan. Plan management has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2016 and 2015, there are no uncertain positions taken or expected to be taken that would require
recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing authorities; however, there are currently no audits for any tax periods in progress.
NOTE 9 - TRANSACTIONS WITH PARTIES IN INTEREST
During
2016, the Plan received $38,650,233 in common stock dividends from the Company. The Leveraged ESOP loan discussed in Note 5, is intended to be an exempt loan under Section 408(b)(3) of ERISA and Section 4975(d)(3) of the IRC.
During 2016, fees totaling $3,200,000 were paid by the Plan to the managers of the investments held in the Plan and an advisor to Plan participants. These
transactions qualify as
party-in-interest
transactions.
Certain Plan
assets are held in participant loans or investments issued by Northern Trust, therefore these transactions qualify as
party-in-interest.
The Plan holds investments
issued by various investment managers of the Plan; these qualify as
party-in-interest.
A portion of the Plans assets are also invested in Company stock.
Certain administrative functions are performed by officers or employees of the Company. No such officer or employee receives compensation from the Plan.
NOTE 10 - RISKS AND UNCERTAINTIES
The Plan invests in
various investment securities. Investment securities are exposed to various risks such as interest rate, market, liquidity and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible
that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in the statements of net assets available for benefits.
(Continued)
13.
McDONALDS CORPORATION PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE 11 - FORM 5500 RECONCILIATION
Following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2016 and 2015 to net assets per the Form
5500 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Net assets available for benefits per the financial statements
|
|
$
|
3,151,620
|
|
|
$
|
3,202,394
|
|
Adjustment from contract value to fair value for fully benefit responsive investment
contracts
|
|
|
(3,896
|
)
|
|
|
(3,569
|
)
|
|
|
|
|
|
|
|
|
|
Net assets per the Form 5500
|
|
$
|
3,147,724
|
|
|
$
|
3,198,825
|
|
|
|
|
|
|
|
|
|
|
Following is a reconciliation of the increase (decrease) in net assets available for benefits per the financial statements for
the year ended December 31, 2016, to the net income per the Form 5500 (amounts in thousands):
|
|
|
|
|
Decrease in net assets available for benefits per the financial statements
|
|
$
|
(50,774
|
)
|
Change in the adjustment from contract value to fair value for fully benefit responsive investment
contracts at December 31, 2016
|
|
|
(327
|
)
|
|
|
|
|
|
Net income per the Form 5500
|
|
$
|
(51,101
|
)
|
|
|
|
|
|
NOTE 12 - SUBSEQUENT EVENTS
Effective January 1, 2017, the Plan has been amended and restated in its entirety. The Plan has been renamed the McDonalds 401k Plan.
Effective January 1, 2017, the Company match will be $1 for every $1 contributed up to a maximum of 6% of eligible compensation and a true-up Company
match calculation will be performed at the end of each calendar year.
Effective January 1, 2017, five new investment options were added as follows;
Growth Fund, Income Fund, Inflation Strategy Fund, Small & Mid Cap Equity Index Fund, and Bond Index Fund.
Effective January 13, 2017,
eight investment options were eliminated as follows; Diversified Stock Fund, Aggressive Stock Fund, International Stock Fund, Real Estate Securities Fund, Intermediate Bond Fund, Global Bond Fund, Blended Stock/Bond Fund, and Small Company Index
Fund.
Effective January 13, 2017 through January 18, 2017 a blackout period was in effect as the Plan transitioned to the new investment
options.
(Continued)
14.