The Coca-Cola Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2017

Income from continuing operations before income taxes consisted of the following (in millions):



Year Ended December 31,	2017				2016			2015
United States	$	(690	)	¹	$	113	¹	$	1,801	¹
International	7,432				8,023			7,804
Total	$	6,742			$	8,136		$	9,605

¹Includes charges of $2,140 million, $2,456 million and $1,006 million related to refranchising certain bottling territories in North America in 2017, 2016 and 2015, respectively. Refer to Note 2.

Schedule of income tax expense (benefit)

Income taxes from continuing operations consisted of the following for the years ended December 31, 2017, 2016 and 2015 (in millions):



	United States				State and Local			International				Total
2017
Current	$	5,438		¹	$	121		$	1,257			$	6,816
Deferred	(1,783		)	^1,2	14			513			¹	(1,256		)
2016
Current	$	1,147			$	113		$	1,182			$	2,442
Deferred	(838		)	²	(91		)	73				(856		)
2015
Current	$	711			$	69		$	1,386			$	2,166
Deferred	120				45			(92		)		73

¹ Includes our reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax resulting from the Tax Cuts and Jobs Act ("Tax Reform Act") that was signed into law on December 22, 2017. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of prescribed foreign earnings was $4.6 billion of tax expense based on cumulative prescribed foreign earnings estimated to be $42 billion. The provisional amount that was primarily related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was a net deferred tax benefit of $1.0 billion.

² Includes the benefit from charges related to refranchising certain bottling territories in North America. Refer to Note 2.

Reconciliation of the statutory U.S. federal tax rate and effective tax rates

A reconciliation of the statutory U.S. federal tax rate and our effective tax rate is as follows:



Year Ended December 31,	2017			2016			2015
Statutory U.S. federal tax rate	35.0	%		35.0	%		35.0	%
State and local income taxes — net of federal benefit	1.2			1.2			1.2
Earnings in jurisdictions taxed at rates different from the statutory U.S. federal rate	(9.7	)		(17.5	)	⁵	(12.7	)
Equity income or loss	(3.4	)		(3.0	)		(1.7	)
Tax Reform Act	53.5		¹	—			—
Other — net	5.9		^2,3,4	3.8		⁶	1.5
Effective tax rate	82.5	%		19.5	%		23.3	%

¹Includes net tax expense of $3,610 million primarily related to our reasonable estimate of the one-time transition tax resulting from the Tax Reform Act that was signed into law on December 22, 2017, partially offset by the impact of the lower rate introduced by the Tax Reform Act on our existing deferred tax balances.

²Includes excess tax benefits of $132 million (or a 2 percent impact on our effective tax rate) recognized as awards issued under the Company's share-based compensation arrangements vested or were settled.

³Includes net tax expense of $1,048 million on a pretax gain of $1,037 million (or a 10.2 percent impact on our effective tax rate) related to the Southwest Transaction, in conjunction with which we obtained an equity interest in AC Bebidas. The Company accounts for its interest in AC Bebidas as an equity method investment and the net tax expense was primarily the result of the deferred tax recorded on the basis difference in this investment. Refer to Note 2.

⁴Includes a $156 million net tax benefit related to the impact of manufacturing incentives and permanent book to tax adjustments.

⁵Includes tax expense of $97 million related to a pretax gain of $1,323 million (or a 4.5 percent impact on our effective tax rate) related to

the deconsolidation of our German bottling operations. Refer to Note 2.

⁶Includes tax expense of $157 million (or a 1.9 percent impact on our effective tax rate) primarily related to amounts required to be

recorded for changes to our uncertain tax positions, including interest and penalties, in certain domestic jurisdictions.

Reconciliation of changes in the gross amount of unrecognized tax benefit

A reconciliation of the changes in the gross amount of unrecognized tax benefits is as follows (in millions):



Year Ended December 31,	2017			2016				2015
Beginning balance of unrecognized tax benefits	$	302		$	168			$	211
Increase related to prior period tax positions	18			163			¹	4
Decrease related to prior period tax positions	(13		)	—				(9		)
Increase related to current period tax positions	13			17				5
Decrease related to settlements with taxing authorities	—			(40		)	¹	(5		)
Decrease due to lapse of the applicable statute of limitations	—			—				(23		)
Increase (decrease) due to effect of foreign currency exchange rate changes	11			(6		)		(15		)
Ending balance of unrecognized tax benefits	$	331		$	302			$	168

The increase is primarily related to a change in judgment about one of the Company's tax positions as a result of receiving notification of a preliminary settlement of a Competent Authority matter with a foreign jurisdiction, a portion of which became certain later in the year. This change in position did not have a material impact on the Company's consolidated statement of income during the year ended December 31, 2016, as it was partially offset by refunds to be received from the foreign jurisdiction.

Deferred tax assets and liabilities

The tax effects of temporary differences and carryforwards that give rise to deferred tax assets and liabilities consist of the following (in millions):



December 31,	2017			2016
Deferred tax assets:
Property, plant and equipment	$	99		$	144
Trademarks and other intangible assets	98			114
Equity method investments (including foreign currency translation adjustment)	300			684
Derivative financial instruments	387			193
Other liabilities	861			1,141
Benefit plans	977			1,599
Net operating/capital loss carryforwards	520			461
Other	163			135
Gross deferred tax assets	3,405			4,471
Valuation allowances	(501		)	(530		)
Total deferred tax assets^1,2	$	2,904		$	3,941
Deferred tax liabilities:
Property, plant and equipment	$	(819	)	$	(1,176	)
Trademarks and other intangible assets	(978		)	(2,694		)
Equity method investments (including foreign currency translation adjustment)	(1,835		)	(1,718		)
Derivative financial instruments	(436		)	(1,121		)
Other liabilities	(50		)	(149		)
Benefit plans	(289		)	(487		)
Other	(688		)	(635		)
Total deferred tax liabilities³	(5,095		)	(7,980		)
Net deferred tax liabilities⁴	$	(2,191	)	$	(4,039	)

¹Current deferred tax assets of $80 million were included in the line item prepaid expenses and other assets in our consolidated balance sheet as of December 31, 2016.

²Noncurrent deferred tax assets of $331 million and $326 million were included in the line item other assets in our consolidated balance sheets as of December 31, 2017 and 2016, respectively.

³Current deferred tax liabilities of $692 million were included in the line item accounts payable and accrued expenses in our consolidated balance sheet as of December 31, 2016.

⁴The decrease in the net deferred tax liabilities was primarily the result of the remeasurement in accordance with the Tax Reform Act and the impact of refranchising certain bottling territories in North America. Refer to Note 2.

Deferred tax asset valuation allowances

An analysis of our deferred tax asset valuation allowances is as follows (in millions):



Year Ended December 31,	2017			2016			2015
Balance at beginning of year	$	530		$	477		$	649
Additions	184			68			42
Decrease due to reclassification to assets held for sale	—			(9		)	(163		)
Deductions	(213		)	(6		)	(51		)
Balance at end of year	$	501		$	530		$	477