| 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 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 2015 to 2020. We expect each of these grants to be renewed indefinitely. 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 2013 is 23.0 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.
The Company recorded income tax expense of $925 million (27.4 percent effective tax rate) and $755 million (24.5 percent effective tax rate) during the three months ended September 27, 2013, and September 28, 2012, respectively. The Company recorded income tax expense of $2,331 million (25.2 percent effective tax rate) and $2,236 million (23.7 percent effective tax rate) during the nine months ended September 27, 2013, and September 28, 2012, 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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September 27,
2013 |
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September 28,
2012 |
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September 27,
2013 |
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September 28,
2012 |
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Asset impairments |
$ |
— |
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1 |
$ |
— |
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$ |
— |
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1 |
$ |
— |
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Productivity and reinvestment program |
(37 |
) |
2 |
(21 |
) |
9 |
(115 |
) |
2 |
(65 |
) |
9 |
Other productivity, integration and restructuring initiatives |
1 |
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3 |
4 |
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10 |
2 |
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3 |
5 |
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10 |
Transaction gains and losses |
255 |
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4 |
— |
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303 |
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7 |
33 |
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11 |
Certain tax matters |
(20 |
) |
5 |
7 |
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12 |
(20 |
) |
5 |
(26 |
) |
14 |
Other — net |
4 |
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6 |
(4 |
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13 |
— |
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8 |
(18 |
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15 |
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1 |
Related to charges of $190 million due to the impairment of certain of the Company's intangible assets. Refer to Note 10 and Note 14.
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2 |
Related to charges of $97 million and $312 million during the three and nine months ended September 27, 2013, respectively. These charges were due to the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
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3 |
Related to net charges of $43 million and $82 million during the three and nine months ended September 27, 2013, respectively. These charges were primarily due to the Company's other restructuring initiatives that are outside the scope of the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
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4 |
Related to a net gain of $585 million consisting of the following items: a gain of $615 million due to the deconsolidation of our Brazilian bottling operations upon their combination with an independent bottler; a gain of $30 million due to the merger of four of the Company's Japanese bottling partners; and charges of $60 million due to the deferral of revenue and corresponding gross profit associated with the intercompany portion of our concentrate sales to CCEJ and the newly combined Brazilian bottling operations until the finished beverage products made from those concentrates are sold to a third party. Refer to Note 2, Note 10 and Note 14.
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5 |
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 |
Related to a net charge of $3 million that consisted of a charge of $11 million associated with certain of the Company's fixed assets, partially offset by a net gain of $8 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 10.
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7 |
Related to a net gain of $574 million that primarily consisted of the following items: a gain of $615 million related to the deconsolidation of our Brazilian bottling operations upon their combination with an independent bottler; a gain of $139 million the Company recognized as a result of Coca-Cola FEMSA issuing additional shares of its own stock during the period at a per share amount greater than the carrying value of the Company's per share investment; a net loss of $114 million due to the merger of four of the Company's Japanese bottling partners; and charges of $60 million due to the deferral of revenue and corresponding gross profit associated with the intercompany portion of our concentrate sales to CCEJ and the newly combined Brazilian bottling operations until the finished beverage products made from those concentrates are sold to a third party. Refer to Note 2, Note 10 and Note 14.
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8 |
Related to charges of $205 million that primarily consisted of the following items: a charge of $23 million due to the early extinguishment of certain long-term debt; a charge of $149 million due to the devaluation of the Venezuelan bolivar; a net charge of $25 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees; and a charge of $11 million associated with certain of the Company's fixed assets. Refer to Note 6 and Note 10.
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9 |
Related to charges of $59 million and $177 million during the three and nine months ended September 28, 2012, 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 $3 million and $30 million during the three and nine months ended September 28, 2012, respectively. These charges were primarily due to the Company's other restructuring initiatives that are outside the scope of the Company's productivity and reinvestment program. Refer to Note 10 and Note 11.
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11 |
Related to a gain of $92 million the Company recognized as a result of Coca-Cola FEMSA issuing additional shares of its own stock during the period at a per share amount greater than the carrying value of the Company's per share investment. Refer to Note 10 and Note 14.
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12 |
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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13 |
Related to a charge of $19 million that consisted of a net charge of $10 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees and a charge of $9 million associated with the Company's orange juice supply in the United States. Refer to Note 10.
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14 |
Related to a net tax benefit primarily associated with the reversal of valuation allowances in the Company's foreign jurisdictions, partially offset by amounts required to be recorded for changes to our uncertain tax positions, including interest and penalties. |
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15 |
Related to a net charge of $22 million that consisted of the following items: a charge of $20 million due to changes in the Company's ready-to-drink tea strategy as a result of our U.S. license agreement with Nestlé terminating at the end of 2012; a charge of $14 million due to changes in the structure of BPW; and a charge of $21 million associated with the Company's orange juice supply in the United States. These charges were partially offset by a net gain of $33 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity method investees. Refer to Note 10.
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