Form 11-K MCDONALDS CORP For: Dec 31
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND
SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒ | Annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2018
Or
☐ | Transition report pursuant to Section 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 001-5231
A. | Full title of the plan and the address of the plan, if different from that of the issuer named below. |
McDONALDS 401K PLAN
B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office. |
McDonalds Corporation
110 North Carpenter Street
Chicago, Illinois 60607
Table of Contents
McDONALDS 401K PLAN
FINANCIAL STATEMENTS
December 31, 2018 and 2017
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Plan Participants and the 401k Plan Administrative Committee
of the McDonalds 401k Plan
Chicago, Illinois
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the McDonalds 401(k) Plan (the Plan) as of December 31, 2018 and 2017, the related statement of changes in net assets available for benefits for the year ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2018 and 2017, and the changes in net assets available for benefits for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plans management. Our responsibility is to express an opinion on the Plans financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plans internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The supplemental Schedule H, Line 4i Schedule of Assets (Held at End of Year) as of December 31, 2018 has been subjected to audit procedures performed in conjunction with the audit of the McDonalds 401k Plan financial statements. The supplemental schedule is the responsibility of the Plans management.
Our audit procedures included determining whether the information presented in the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule, we evaluated whether the
(Continued) |
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1. |
Table of Contents
supplemental schedule, including its form and content, is presented in conformity with the Department of Labors Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental schedule is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ Crowe LLP |
We have served as the Plans auditor since 2007. |
Chicago, Illinois |
June 24, 2019 |
2. |
Table of Contents
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2018
(Amounts in thousands)
Participant- Directed Investments |
ESOP | |||||||||||||||
Allocated Account |
Unallocated Account |
Total 2018 |
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ASSETS |
||||||||||||||||
Investments, at fair value |
||||||||||||||||
Cash |
$ | 537 | $ | | $ | | $ | 537 | ||||||||
US Treasury Securities |
27,431 | | | 27,431 | ||||||||||||
Option Contracts |
(1,124 | ) | | | (1,124 | ) | ||||||||||
ETF |
80,781 | | | 80,781 | ||||||||||||
McDonalds Corporation common stock |
1,073,256 | 413,393 | | 1,486,649 | ||||||||||||
Collective funds |
1,297,143 | 6,193 | | 1,303,336 | ||||||||||||
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Total investments, at fair value |
2,478,024 | 419,586 | | 2,897,610 | ||||||||||||
Investments, at contract value |
409,685 | | | 409,685 | ||||||||||||
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Total investments |
2,887,709 | 419,586 | | 3,307,295 | ||||||||||||
Receivables |
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Participant contributions |
164 | | | 164 | ||||||||||||
Company contributions |
1,805 | | | 1,805 | ||||||||||||
Accrued income |
210 | 12 | | 222 | ||||||||||||
Other receivables |
146 | | | 146 | ||||||||||||
Interfund receivables |
36 | (36 | ) | | | |||||||||||
Participant loans |
22,002 | | | 22,002 | ||||||||||||
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Total receivables |
24,363 | (24 | ) | | 24,339 | |||||||||||
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Total assets |
2,912,072 | 419,562 | | 3,331,634 | ||||||||||||
LIABILITIES |
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Management expenses payable |
838 | 2 | | 840 | ||||||||||||
Pending trades due to brokers |
| | | | ||||||||||||
Accrued interest expense |
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Notes payable |
| | | | ||||||||||||
Other liabilities |
2,983 | 32 | | 3,015 | ||||||||||||
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Total liabilities |
3,821 | 34 | | 3,855 | ||||||||||||
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NET ASSETS AVAILABLE FOR BENEFITS |
$ | 2,908,251 | $ | 419,528 | $ | | $ | 3,327,779 | ||||||||
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See accompanying notes to financial statements.
3. |
Table of Contents
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2017
(Amounts in thousands)
Participant- Directed Investments |
ESOP | |||||||||||||||
Allocated Account |
Unallocated Account |
Total 2017 |
||||||||||||||
ASSETS |
||||||||||||||||
Investments, at fair value |
||||||||||||||||
Cash |
$ | 564 | $ | | $ | | $ | 564 | ||||||||
US Treasury Securities |
27,234 | | | 27,234 | ||||||||||||
Option Contracts |
(122 | ) | | | (122 | ) | ||||||||||
ETF |
85,025 | | | 85,025 | ||||||||||||
McDonalds Corporation common stock |
1,130,744 | 429,309 | 19,762 | 1,579,815 | ||||||||||||
Collective funds |
1,499,194 | 9,056 | 225 | 1,508,475 | ||||||||||||
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Total investments, at fair value |
2,742,639 | 438,365 | 19,987 | 3,200,991 | ||||||||||||
Investments, at contract value |
391,254 | | | 391,254 | ||||||||||||
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Total investments |
3,133,893 | 438,365 | 19,987 | 3,592,245 | ||||||||||||
Receivables |
||||||||||||||||
Company contributions |
1,833 | | | 1,833 | ||||||||||||
Accrued income |
743 | 8 | | 751 | ||||||||||||
Other receivables |
23 | | | 23 | ||||||||||||
Interfund receivables |
37 | (37 | ) | | | |||||||||||
Participant loans |
24,951 | | | 24,951 | ||||||||||||
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Total receivables |
27,587 | (29 | ) | | 27,558 | |||||||||||
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Total assets |
3,161,480 | 438,336 | 19,987 | 3,619,803 | ||||||||||||
LIABILITIES |
||||||||||||||||
Management expenses payable |
495 | 2 | | 497 | ||||||||||||
Pending trades due to brokers |
649 | | | 649 | ||||||||||||
Accrued interest expense |
| | 71 | 71 | ||||||||||||
Notes payable |
| | 2,192 | 2,192 | ||||||||||||
Other liabilities |
787 | 42 | | 829 | ||||||||||||
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Total liabilities |
1,931 | 44 | 2,263 | 4,238 | ||||||||||||
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NET ASSETS AVAILABLE FOR BENEFITS |
$ | 3,159,549 | $ | 438,292 | $ | 17,724 | $ | 3,615,565 | ||||||||
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See accompanying notes to financial statements.
4. |
Table of Contents
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2018
(Amounts in thousands)
Participant- Directed Investments |
ESOP | |||||||||||||||
Allocated Account |
Unallocated Account |
Total 2018 |
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Additions to net assets attributed to: |
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Net appreciation/(depreciation) in fair value of investments |
$ | (54,657 | ) | $ | 11,369 | $ | (1,120 | ) | $ | (44,408 | ) | |||||
Interest Income |
9,379 | 124 | 6 | 9,509 | ||||||||||||
Dividends |
28,174 | 10,055 | 112 | 38,341 | ||||||||||||
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Net investment income |
(17,104 | ) | 21,548 | (1,002 | ) | 3,442 | ||||||||||
Contributions |
||||||||||||||||
Company |
25,414 | 5,429 | 1,987 | 32,830 | ||||||||||||
Participant |
49,028 | | | 49,028 | ||||||||||||
Rollovers |
3,207 | | | 3,207 | ||||||||||||
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Total contributions |
77,649 | 5,429 | 1,987 | 85,065 | ||||||||||||
Interfund transfers-in |
11,594 | | | 11,594 | ||||||||||||
Participant loan interest income |
1,045 | | | 1,045 | ||||||||||||
Other |
278 | | | 278 | ||||||||||||
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Total net additions |
73,462 | 26,977 | 985 | 101,424 | ||||||||||||
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Deductions from net assets attributed to: |
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Benefits paid to terminated participants and withdrawals |
321,961 | 34,059 | | 356,020 | ||||||||||||
Management and administrative expenses |
2,699 | 88 | | 2,787 | ||||||||||||
Interfund transfers-out |
| 11,594 | | 11,594 | ||||||||||||
Interest expense |
| | 67 | 67 | ||||||||||||
Company matching with profit sharing forfeitures |
100 | | | 100 | ||||||||||||
Company matching with ESOP shares |
| | 18,642 | 18,642 | ||||||||||||
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Total deductions |
324,760 | 45,741 | 18,709 | 389,210 | ||||||||||||
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Net increase (decrease) |
(251,298 | ) | (18,764 | ) | (17,724 | ) | (287,786 | ) | ||||||||
Net assets available for benefits |
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Beginning of year |
3,159,549 | 438,292 | 17,724 | 3,615,565 | ||||||||||||
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End of year |
$ | 2,908,251 | $ | 419,528 | $ | | $ | 3,327,779 | ||||||||
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See accompanying notes to financial statements.
5. |
Table of Contents
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1DESCRIPTION OF PLAN
General: The Plan is administered by a committee of officers (the 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. For purposes of the eligibility and contribution description below, the term Company includes McDonalds Corporation and all participating employers.
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. Vice Presidents and above, crew employees and interns 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 the Growth Fund, Income Fund, Inflation Strategy Fund, Capital Preservation Fund, Large Cap Equity Index Fund, Small & Mid Cap Equity Index Fund, International Equity Index Fund, Bond Index 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) $1 for every $1 of contributions to the Plan, up to a maximum of 6% of eligible compensation (as defined by the Plan). ESOP shares, to the extent available, are used to make matching contributions. Upon expiration of the Leveraged ESOP in July of 2018, the Company used cash to make the matching contributions. The Companys cash contribution for 2018 was $14,088,000.
A true-up calculation will be performed at the end of each calendar year and will be posted to participant accounts in January of the following year.
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6. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1DESCRIPTION OF PLAN (Continued)
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 Capital Preservation 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 Income 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 true-up 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. In accordance with the terms of the Leveraged ESOP Note, the final principal payment was made in July 2018.
During 2018, the remaining 114,815 shares were released from the unallocated ESOP shares with a fair value of approximately $18,642,000.
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. If a participant terminates with an unpaid loan exceeding $1,000 and does not take a full distribution, the participant has 90 days to pay off the loan in full or elect to use the direct debit feature and continue to make monthly payments for the remaining loan term.
(Continued) |
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7. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1DESCRIPTION OF PLAN (Continued)
Qualified Domestic Relations Orders (QDROs): QDROs received 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 701⁄2 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 591⁄2 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 2SUMMARY 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.
Investment Valuation and Income Recognition: Other than fully benefit-responsive investment contracts which are valued at contract value, the Plans investments are reported at fair value. Net appreciation includes the Plans gains and losses on investments bought and sold as well as held during the year. 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.
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8. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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: Treasury securities are priced by a pricing vendor on the basis of bid or mid evaluations according to a regions market convention using factors which include but are not limited to market quotations, yields, and maturities. The pricing vendors use proprietary methods to arrive at the evaluated price (level 2). These prices represent the price a dealer would pay for a security (typically in an institutional round lot).
Option Contracts: This asset type includes put and call options on Bonds, Commodities, Equities, Equity Index, Note/Bond Swap Futures, Over-The-Counter (OTC) Commodities, OTC Debt, OTC Equity Index and OTC Equity Options. Exchange trade options and futures are priced using an exchange disseminated price at the end of the trading day (Level 1).
ETF: An exchange-traded fund that holds assets such as stock, commodities, or bonds and is designed to trade close to its net asset value. The fair values of exchanges traded funds are determined by obtaining quoted prices on nationally recognized securities exchanges. (Level 1).
McDonalds common stock: The fair values of publicly traded common stocks are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1).
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, some holding securities of companies in a particular industry sector, 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. Each collective trust provides for daily redemptions by the Plan at reported net asset values per share, with no advance notice requirement.
(Continued) |
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9. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments measured at fair value on a recurring basis as of December 31, 2018 and 2017 are summarized below (amounts in thousands):
Assets at Fair Value as of December 31, 2018 | ||||||||||||||||
Investment Type |
(Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Cash |
$ | 537 | $ | | $ | | $ | 537 | ||||||||
US Treasury securities |
| 27,431 | | 27,431 | ||||||||||||
Option Contracts |
(1,124 | ) | | | (1,124 | ) | ||||||||||
ETF |
80,781 | | | 80,781 | ||||||||||||
McDonalds Corp common stock |
1,486,649 | | | 1,486,649 | ||||||||||||
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Total assets in the fair value hierarchy |
1,566,843 | 27,431 | | 1,594,274 | ||||||||||||
Investments measured at net asset value (a) |
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Collective Trusts |
| | | 1,303,336 | ||||||||||||
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Investments at fair value |
$ | 1,566,843 | $ | 27,431 | $ | | $ | 2,897,610 | ||||||||
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Assets at Fair Value as of December 31, 2017 | ||||||||||||||||
Investment Type |
(Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Cash |
$ | 564 | $ | $ | | $ | 564 | |||||||||
US Treasury securities |
27,234 | | 27,234 | |||||||||||||
Option contracts |
(122 | ) | | (122 | ) | |||||||||||
ETF |
85,025 | | | 85,025 | ||||||||||||
McDonalds Corp common stock |
1,579,815 | | | 1,579,815 | ||||||||||||
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Total assets in the fair value hierarchy |
1,665,282 | 27,234 | | 1,692,516 | ||||||||||||
Investments measured at net asset value (a) |
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Collective Trusts |
| | | 1,508,475 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Investments at fair value |
$ | 1,665,282 | $ | 27,234 | $ | | $ | 3,200,991 | ||||||||
|
|
|
|
|
|
|
|
(a) | In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent as a practical expedient) 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. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2SUMMARY 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). The leveraged ESOP expired as of July 2018. As of December 31, 2017, the estimated fair value and carrying value of the Plans long-term debt was $2,312,000 and $2,192,000, 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 3FULLY BENEFIT RESPONSIVE INVESTMENT CONTRACTS
The Plan investments include a Capital Preservation Fund, managed by GSAM Stable Value, LLC, 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 participant withdrawals and administrative expenses. The Capital Preservation Fund holds the Short Term Investment Fund (STIF) along with synthetic guaranteed investment contracts, which hold limited liability companies (LLC) and collective funds that invest in various fixed income securities. The STIF is valued at Net Asset Value amounting to $13,239,553 in 2018 and included within collective trusts in the ASC 820 fair value table in Note 2. The fair value of the limited liability companies is estimated using the Plans percentage ownership in the limited liability company based on the audited financial statements. These synthetic investment contracts are included in the financial statements at contract value except the STIF. Contract value represents contributions made under the contracts, plus earnings, less participant withdrawals and administrative expenses.
The synthetic investment contracts within the Capital Preservation Fund specify certain conditions under which distributions from the contracts would be payable at amounts below contract value. Such circumstances may include the termination of the Plan, a material adverse change to the provisions of the Plan, if the employer elects to terminate a synthetic investment contract in order to switch to a different investment advisor or if the terms of a successor plan (in the event of the spin-off or sale of a division) do not meet the synthetic investment contract issuers underwriting criteria for issuance of a clone contract. The contracts may also limit the circumstances under which an issuer may terminate a synthetic investment contract. Examples of circumstances which would allow an issuer to terminate the contract 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 any one of these events were to occur, the issuer may terminate the contract 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 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 crediting rates are reviewed and reset on a monthly basis. The key factors that influence future 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.
(Continued) |
||||
11. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 4NONPARTICIPANT-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.
NOTE 5NOTES 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. Principal and interest payments were made according to the applicable loan schedules. Dividends on the converted common stock and Company contributions were used to repay the loans.
The Leveraged ESOP loan expired and was paid in full as of July 2018. As of December 31, 2018 there are no shares available due to the maturity of the loan (see note 1).
NOTE 6PLAN TERMINATION
Although it has not expressed any intent to do so, the McDonalds Corporation has the right under the Plan 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 7ADMINISTRATIVE 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. Administrative fees associated with the Plan are paid by the Company.
NOTE 8INCOME 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 restated, effective January 1, 2017, 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.
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, 2018 and 2017, 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 regulators and is currently under routine audit by the Department of Labor.
NOTE 9TRANSACTIONS WITH PARTIES IN INTEREST
During 2018, the Plan received $36,609,753 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 2018, fees totaling $2,788,000 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.
(Continued) |
||||
12. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 9TRANSACTIONS WITH PARTIES IN INTEREST (Continued)
Certain Plan assets are held in participant loans or investments issued by The Northern Trust Company or State Street Bank and Trust Company, 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. The Plan held 8,372,186 and 9,178,510 shares as of December 31, 2018 and 2017 respectively.
Certain administrative functions are performed by officers or employees of the Company. No such officer or employee receives compensation from the Plan.
NOTE 10RISKS AND UNCERTAINTIES
The Plan invests in various investments. Investments are exposed to various risks such as interest rate, market, liquidity and credit risks. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the values of investments 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. |
Table of Contents
McDONALDS 401K PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 11FORM 5500 RECONCILIATION
Following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2018 and 2017 to net assets per the Form 5500 (amounts in thousands):
2018 | 2017 | |||||||
Net assets available for benefits per the financial statements | $ | 3,327,778 | $ | 3,615,565 | ||||
Adjustment from contract value to fair value for fully benefit responsive investment contracts |
(8,020 | ) | (2,595 | ) | ||||
|
|
|
|
|||||
Net assets per the Form 5500 |
$ | 3,319,758 | $ | 3,612,970 | ||||
|
|
|
|
Following is a reconciliation of the increase (decrease) in net assets available for benefits per the financial statements for the year ended December 31, 2018, to the net loss per the Form 5500 (amounts in thousands):
Decrease in net assets available for benefits per the financial statements | $ | (287,787 | ) | |
Change in the adjustment from contract value to fair value for fully benefit responsive investment contracts at December 31, 2018 |
(5,425 | ) | ||
|
|
|||
Net loss per the Form 5500 |
$ | (293,212 | ) | |
|
|
(Continued) |
||||
14. |
Table of Contents
MCDONALDS CORPORATION, EIN 36-2361282
MCDONALDS 401K PLAN, PLAN NUMBER 001
PLAN YEAR END DECEMBER 31, 2018
FORM 5500, SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS HELD AT END OF YEAR
(a) | (b)(c) | (d) | (e) | |||||||
IDENTITY OF ISSUER/DESCRIPTION |
COST** | MARKET VALUE |
||||||||
McDONALDS CORPORATION COMMON STOCK |
||||||||||
* |
MC DONALDS CORP COM |
1,072,952,342 | ||||||||
* |
MC DONALDS CORP COM |
413,393,792 | ||||||||
* |
MC DONALDS CORP COM |
302,934 | ||||||||
|
|
|||||||||
SUBTOTALMcDONALDS CORPORATION STOCK |
1,486,649,068 | |||||||||
ETF |
||||||||||
ISHARES CORE S P 500 ETF |
80,780,649 | |||||||||
|
|
|||||||||
SUBTOTALETF |
80,780,649 | |||||||||
MCDONALDS LOAN ASSETS |
||||||||||
* |
PARTICIPANT LOANS (4.25% - 6.25%)(2018-2023) |
22,002,412 | ||||||||
|
|
|||||||||
22,002,412 | ||||||||||
SYNTHETIC GUARANTEED INVESTMENT CONTRACTS |
||||||||||
* |
GOLDMAN SACHS ASSET MANAGEMENT INTERMEDIATE CORE FUND |
110,227,049 | ||||||||
LOOMIS INTERMEDIATE GOV/CREDIT FUND |
77,610,138 | |||||||||
WELLINGTON INTERMEDIATE CORE PORTFOLIO |
84,826,042 | |||||||||
* |
GOLDMAN SACHS ASSET MANAGEMENT TERM FUND 2018 |
1,484,002 | ||||||||
* |
GOLDMAN SACHS ASSET MANAGEMENT TERM FUND 2019 |
34,912,544 | ||||||||
* |
GOLDMAN SACHS ASSET MANAGEMENT TERM FUND 2020 |
34,909,699 | ||||||||
* |
GOLDMAN SACHS ASSET MANAGEMENT TERM FUND 2021 |
32,730,102 | ||||||||
* |
GOLDMAN SACHS ASSET MANAGEMENT TERM FUND 2022 |
24,965,427 | ||||||||
|
|
|||||||||
SUBTOTALSYNTHETIC GUARANTEED INVESTMENT CONTRACTS |
401,665,003 | |||||||||
COLLECTIVE TRUSTS |
||||||||||
* |
MFB NT COLLECTIVE ALL COUNTRY WORLD EX-US IMI FUND - NON LENDING |
89,919,332 | ||||||||
* |
MFB NT COLLECTIVE S&P500 INDEX FUND-NON LENDING |
344,474,354 | ||||||||
* |
MFO AON HEWITT GLOBAL EQUITY CLASS I |
221,905,819 | ||||||||
* | MFO JPMORGAN CORE DIVERSIFIED COMMERCIAL PROPERTY FUND |
89,541,912 | ||||||||
* |
MFO SSGA S&P 500 NON LENDING SER CL |
20,235,082 | ||||||||
* |
MFO SSGA RUSSELL SMALL/MID CAP INDEX NL SERIES FUND CLASS A |
10,406,891 | ||||||||
* |
MFO SSGA REIT INDEX NON LENDING SERIES FUND CMX2 |
4,928,964 | ||||||||
* |
NT COLLECTIVE EXTENDED EQUITY INDEX FD -NONLENDING |
146,930,898 | ||||||||
* |
MFB NT COLLECTIVE AGGREGATE BOND INDEX FUND-NON LENDING |
95,846,964 | ||||||||
* |
MFO AON HEWITT INCOME CLASS I |
137,625,612 | ||||||||
* |
MFO AON HEWITT INFLATION STRATEGY CLASS I |
38,625,018 | ||||||||
* |
MFO STATE STREET BLOOMBERG ROLL SELECT COMMODITY INDEX |
21,667,215 | ||||||||
* |
MFO SSGA GLOBAL EQUITY EX USA INDEX NL SERIES CL A - |
33,528,964 | ||||||||
* |
NORTHERN TRUST COLTV SHORT TERM INVT FD |
47,698,726 | ||||||||
|
|
|||||||||
SUBTOTALCOLLECTIVE TRUSTS |
1,303,335,751 | |||||||||
OPTION CONTRACTS |
||||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2530.00 PER SHARE 22-JAN-2019 |
(83,600 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2560.00 PER SHARE 23-JAN-2019 |
(53,640 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2565.00 PER SHARE 18-JAN-2019 |
(44,550 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2645.00 PER SHARE 16-JAN-2019 |
(8,010 | ) |
15. |
Table of Contents
(a) | (b)(c) | (d) | (e) | |||||||
IDENTITY OF ISSUER/DESCRIPTION |
COST** | MARKET VALUE |
||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2715.00 PER SHARE 14-JAN-2019 | (1,035 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2720.00 PER SHARE 11-JAN-2019 | (675 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2750.00 PER SHARE 07-JAN-2019 | (170 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2750.00 PER SHARE 09-JAN-2019 | (225 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2780.00 PER SHARE 04-JAN-2019 | (90 | ) | ||||||||
S&P WEEKLY INDEX OPTION CALL OPTION W/STK $2820.00 PER SHARE 02-JAN-2019 | (85 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2210.00 PER SHARE 22-JAN-2019 | (9,025 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2230.00 PER SHARE 23-JAN-2019 | (10,890 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2280.00 PER SHARE 18-JAN-2019 | (13,320 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2390.00 PER SHARE 16-JAN-2019 | (31,230 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2470.00 PER SHARE 14-JAN-2019 | (58,410 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2480.00 PER SHARE 11-JAN-2019 | (56,185 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2495.00 PER SHARE 07-JAN-2019 | (47,005 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2500.00 PER SHARE 09-JAN-2019 | (64,890 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2515.00 PER SHARE 04-JAN-2019 | (55,505 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2580.00 PER SHARE 02-JAN-2019 | (128,435 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2620.00 PER SHARE 28-DEC-2018 | (159,236 | ) | ||||||||
S&P WEEKLY INDEX OPTION PUT OPTION W/STK$2680.00 PER SHARE 31-DEC-2018 | (297,840 | ) | ||||||||
|
|
|||||||||
SUBTOTALOPTION CONTRACTS | (1,124,051 | ) | ||||||||
INTEREST-BEARING CASH |
||||||||||
United States dollarInvested cash | 537,403 | |||||||||
|
|
|||||||||
SUBTOTALINTEREST-BEARING CASH |
537,403 | |||||||||
UNITED STATES TREASURIES |
||||||||||
UNITED STATES OF AMER TREAS BILLS 0% T-BILL 07-18-2019 | 4,202,332 | |||||||||
UNITED STATES TREAS BILLS DUE 01-03-2019 | 5,899,634 | |||||||||
UNITED STATES TREAS NTS DTD 06/15/2016 .875% DUE 06-15-2019 REG | 9,529,872 | |||||||||
UNITED STATES TREAS T NOTE 1.25 % 08-31-2019 | 7,798,989 | |||||||||
|
|
|||||||||
SUBTOTALUNITED STATES TREASURIES | 27,430,827 | |||||||||
TOTAL ASSETS | 3,321,277,062 | |||||||||
|
|
* | Party in Interest |
** | Historical cost is disclosed only for nonparticipant-directed investments |
16. |
Table of Contents
Exhibit |
Description of Exhibit | |
23.1 | Consent of Crowe LLP Independent Registered Public Accounting Firm |
17. |
Table of Contents
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
McDonalds 401K Plan | ||||||
Dated: June 25, 2019 | By: | /s/ Karen Matusinec | ||||
Name: | Karen Matusinec | |||||
Title: | Corporate SVP Treasurer |
|
||||
18. |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-149990 and 333-230498 on Form S-8 of McDonalds Corporation of our report dated June 24, 2019 appearing in this Annual Report on Form 11-K of McDonalds 401k Plan for the year ended December 31, 2018.
/s/ Crowe LLP
Oak Brook, Illinois
June 24, 2019