Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.7.0.1
Income Taxes
 6 Months Ended
Jun. 30, 2017
Income taxes  
Income Taxes
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 35.0 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 2017 to 2036. 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 2017 is 24.0 percent. However, in arriving at this estimate we do not include the estimated impact of significant operating and nonoperating 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 $1,252 million (47.7 percent effective tax rate) and $839 million (19.5 percent effective tax rate) during the three months ended June 30, 2017 and July 1, 2016, respectively. The Company recorded income tax expense of $1,575 million (38.1 percent effective tax rate) and $1,240 million (20.0 percent effective tax rate) during the six months ended June 30, 2017 and July 1, 2016, respectively.
The following table illustrates the income tax expense (benefit) associated with significant operating and nonoperating items for the interim periods presented (in millions):
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
2017

 
July 1,
2016

 
June 30,
2017

 
July 1,
2016

 
Asset impairments
$
(164
)
1 
$
—


$
(164
)
1 
$
—


Productivity and reinvestment program
(31
)
2 
(24
)
8 
(83
)
2 
(45
)
8 
Other productivity, integration and restructuring initiatives
—


—

9 
—


—

9 
Transaction gains and losses
707

3 
26

10 
533

4 
(117
)
11 
Certain tax matters
(40
)
5 
83

12 
(70
)
5 
77

12 
Other — net
(12
)
6 
(45
)
13 
(29
)
7 
(46
)
14 
1 
Related to charges of $667 million and $771 million during the three and six months ended June 30, 2017, respectively, due to the impairment of certain assets. Refer to Note 10 and Note 14.
2 
Related to charges of $87 million and $226 million during the three and six months ended June 30, 2017, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to Note 11.
3 
Related to a net gain of $82 million which primarily consisted of a $445 million gain related to the merger of CCW and CCEJ, a $25 million gain related to Coca-Cola FEMSA, an equity method investee, issuing additional shares of its stock and a $9 million gain related to refranchising a substantial portion of our China bottling operations. These gains were partially offset by a net charge of $214 million as a result of the refranchising of certain bottling territories in North America, charges of $109 million primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements, a charge of $44 million related to costs incurred to refranchise certain of our bottling operations and a charge of $26 million related to our former German bottling operations. Refer to Note 2 and Note 10.
4 
Related to charges of $583 million which primarily consisted of $711 million of net charges as a result of the refranchising of certain bottling territories in North America, charges of $215 million primarily related to payments made to convert the bottling agreements for certain North America bottling partners' territories to a single form of CBA with additional requirements, $101 million related to costs incurred to refranchise certain of our bottling operations and a charge of $26 million related to our former German bottling operations. These charges were partially offset by a $445 million gain related to the merger of CCW and CCEJ, a $25 million gain related to Coca-Cola FEMSA, an equity method investee, issuing additional shares of its stock and a $9 million gain related to refranchising a substantial portion of our China bottling operations. Refer to Note 2 and Note 10.
5 
Related to $29 million and $82 million of excess tax benefits associated with the Company's share-based compensation arrangements during the three and six months ended June 30, 2017, respectively, and the tax benefit associated with the reversal of valuation allowances in certain of the Company's foreign jurisdictions both of which were partially offset by changes to our uncertain tax positions, including interest and penalties. The components of the net change in uncertain tax positions were individually insignificant.
6 Related to charges of $22 million which primarily consisted of a $38 million net charge related to the extinguishment of long-term debt and $19 million due to tax litigation expense partially offset by a $37 million net gain due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 10.
7 Related to charges of $86 million which primarily consisted of a $38 million net charge related to the extinguishment of long-term debt, $25 million due to tax litigation expense and a $21 million net charge due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 10.
8 Related to charges of $65 million and $128 million during the three and six months ended July 1, 2016, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to Note 11.
9 Related to charges of $41 million and $240 million during the three and six months ended July 1, 2016, respectively. These charges were due to the integration of our German bottling operations. Refer to Note 11.
10 Related to a net gain of $1,040 million which primarily consisted of a $1,292 million gain related to the deconsolidation of our German bottling operations, partially offset by $199 million of losses due to the refranchising of territories in North America and $52 million of costs incurred to refranchise our North America bottling territories. Refer to Note 2 and Note 10.
11 Related to a net gain of $643 million which primarily consisted of a $1,292 million gain related to the deconsolidation of our German bottling operations and an $18 million gain related to the disposal of our investment in Keurig. These gains were partially offset by charges of $665 million related to $568 million of losses due to the refranchising of territories in North America and $97 million related to costs incurred to refranchise our North America bottling territories. Refer to Note 2 and Note 10.
12 Primarily related to amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties.
13 Related to charges of $125 million which included a $100 million cash contribution to The Coca-Cola Foundation, an $18 million charge due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees and a $7 million charge due to tax litigation expense. Refer to Note 10.
14 Related to charges of $131 million which included a $100 million cash contribution to The Coca-Cola Foundation, a $21 million charge due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees and a $10 million charge due to tax litigation expense. Refer to Note 10.
The Company evaluates the recoverability of our deferred tax assets in accordance with U.S. GAAP. 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 asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards from operations in various jurisdictions.