INCOME TAXES
Our effective tax rate reflects the benefits of having significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35 percent. As a result of employment actions and capital investments made by the Company, certain tax jurisdictions provide income tax incentive grants, including Brazil, Costa Rica, Singapore and Swaziland. The terms of these grants expire from 2016 to 2023. We anticipate that we will be able to extend or renew the grants in these locations. In addition, our effective tax rate reflects the benefits of having significant earnings generated in investments accounted for under the equity method of accounting, which are generally taxed at rates lower than the U.S. statutory rate.
At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, our best estimate of operating results and foreign currency exchange rates. Based on current tax laws, the Company's estimated effective tax rate for 2015 is 22.5 percent. However, in arriving at this estimate we do not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.
On September 17, 2015, the Company received a Statutory Notice of Deficiency from the IRS for the tax years 2007 through 2009, after a five-year audit. Refer to Note 7.
The Company recorded income tax expense of $272 million (15.8 percent effective tax rate) and $538 million (20.2 percent effective tax rate) during the three months ended October 2, 2015 and September 26, 2014, respectively. The Company recorded income tax expense of $1,937 million (24.0 percent effective tax rate) and $1,896 million (23.0 percent effective tax rate) during the nine months ended October 2, 2015 and September 26, 2014, respectively.
The following table illustrates the tax expense (benefit) associated with unusual and/or infrequent items for the interim periods presented (in millions):
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Three Months Ended |
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Nine Months Ended |
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October 2,
2015 |
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September 26,
2014 |
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October 2,
2015 |
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September 26,
2014 |
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Productivity and reinvestment program |
$ |
(49 |
) |
1 |
$ |
(30 |
) |
9 |
$ |
(124 |
) |
1 |
$ |
(96 |
) |
9 |
Other productivity, integration and restructuring initiatives |
— |
|
2 |
— |
|
10 |
— |
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2 |
— |
|
10 |
Transaction gains and losses |
(291 |
) |
3 |
(96 |
) |
11 |
173 |
|
4 |
(147 |
) |
12 |
Certain tax matters |
(6 |
) |
5 |
(29 |
) |
13 |
(6 |
) |
6 |
2 |
|
13 |
Other — net |
— |
|
7 |
(2 |
) |
14 |
(168 |
) |
8 |
6 |
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15 |
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1 |
Related to charges of $141 million and $323 million during the three and nine months ended October 2, 2015, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
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2 |
Related to charges of $75 million and $204 million during the three and nine months ended October 2, 2015, respectively. These charges were due to the integration of our German bottling operations. Refer to Note 10 and Note 11.
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3 |
Related to a net charge of $859 million that included $815 million in charges primarily due to the refranchising of certain territories in North America and a $38 million charge due to the impairment of one of the trademarks included in the glacéau portfolio. Refer to Note 2 and Note 10.
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4 |
Related to a net gain of $102 million that primarily consisted of a $1,402 million net gain related to the Monster Transaction, partially offset by $418 million of charges due to the impairment of one of the trademarks included in the glacéau portfolio, $848 million of charges primarily due to the refranchising of certain territories in North America, a $6 million additional charge related to the sale of a portion of our equity investment in a Brazilian bottling entity and a $19 million charge related to the remeasurement of our equity interest in a South African bottler to fair value. Refer to Note 2 and Note 10.
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5 |
Primarily related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant. |
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6 |
Primarily related to prior year audit settlements and amounts to be recorded for changes to our uncertain tax positions, including interest and penalties. The components of the net change in the uncertain tax positions were individually insignificant. |
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7 |
Related to charges of $1 million that primarily included a $3 million impairment of a Venezuelan trademark and a $3 million gain due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 1 and Note 10.
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8 |
Related to charges of $639 million that primarily consisted of a $100 million cash donation to The Coca-Cola Foundation, $320 million associated with the early extinguishment of long-term debt, $27 million due to the remeasurement of the net monetary assets of our Venezeulan subsidiary into U.S. dollars using the SIMADI exchange rate, $111 million due to the write-down we recorded related to receivables from our bottling partner in Venezuela and an impairment of a Venezuelan trademark, and $79 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 1, Note 6 and Note 10.
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9 |
Related to charges of $84 million and $259 million during the three and nine months ended September 26, 2014, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
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10 |
Related to charges of $34 million and $142 million during the three and nine months ended September 26, 2014, respectively. These charges were due to the integration of our German bottling operations. Refer to Note 10 and Note 11.
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11 |
Related to charges of $277 million including $270 million due to refranchising certain North America territories. Refer to Note 2.
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12 |
Related to charges of $417 million including $410 million due to refranchising certain North America territories. Refer to Note 2.
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13 |
Primarily related to prior year audit settlements and amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties, of which the components of the net change were individually insignificant. |
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14 |
Related to charges of $14 million that primarily consisted of $5 million due to the restructuring and transition of the Company's Russian juice operations to an existing joint venture with an unconsolidated bottling partner, and $8 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 1 and Note 10.
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15 |
Related to charges of $319 million that primarily consisted of $268 million due to the expansion of the Venezuelan government's currency conversion markets, including a write-down of receivables from our bottling partner in Venezuela, $30 million due to the restructuring and transition of the Company's Russian juice operations to an existing joint venture with an unconsolidated bottling partner, and $20 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 1 and Note 10.
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The Company evaluates the recoverability of our deferred tax assets in accordance with accounting principles generally accepted in the United States. We perform our recoverability tests on a quarterly basis, or more frequently, to determine whether it is more likely than not that any of our deferred tax assets will not be realized within their life cycle based on the available evidence. The Company's deferred tax valuation allowances are primarily a result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards from operations in various jurisdictions.
During the three months ended October 2, 2015, there was a transfer of a valuation allowance of $164 million into liabilities held for sale as required by U.S. GAAP upon execution of the agreement to merge our German bottling operations with CCE and CCIP.