| 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 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 2014 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.
The Company recorded income tax expense of $779 million (23.0 percent effective tax rate) and $831 million (23.5 percent effective tax rate) during the three months ended June 27, 2014 and June 28, 2013, respectively. The Company recorded income tax expense of $1,358 million (24.3 percent effective tax rate) and $1,406 million (23.9 percent effective tax rate) during the six months ended June 27, 2014 and June 28, 2013, 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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Six Months Ended |
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June 27,
2014 |
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June 28,
2013 |
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June 27,
2014 |
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June 28,
2013 |
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Productivity and reinvestment program |
$ |
(34 |
) |
1 |
$ |
(38 |
) |
7 |
$ |
(66 |
) |
1 |
$ |
(78 |
) |
7 |
Other productivity, integration and restructuring initiatives |
— |
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2 |
1 |
|
8 |
— |
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2 |
1 |
|
8 |
Transaction gains and losses |
(51 |
) |
3 |
48 |
|
9 |
(51 |
) |
3 |
48 |
|
9 |
Certain tax matters |
26 |
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4 |
(1 |
) |
10 |
31 |
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4 |
— |
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10 |
Other — net |
3 |
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5 |
(8 |
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11 |
8 |
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6 |
(4 |
) |
12 |
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1 |
Related to charges of $89 million and $175 million during the three and six months ended June 27, 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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2 |
Related to charges of $66 million and $108 million during the three and six months ended June 27, 2014, respectively. These charges were due to the integration of our German bottling and distribution operations. Refer to Note 10 and Note 11.
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3 |
Related to a charge of $140 million during the three and six months ended June 27, 2014, which was primarily due to the derecognition of intangible assets as a result of refranchising certain North America territories to three of its unconsolidated bottling partners. Refer to Note 2.
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4 |
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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5 |
Related to charges of $52 million that consisted of $21 million due to a write-down of receivables related to sales of concentrate to our bottling partner in Venezuela, $25 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 $6 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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6 |
Related to charges of $305 million that 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, $25 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 $12 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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7 |
Related to charges of $113 million and $215 million during the three and six months ended June 28, 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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8 |
Related to net charges of $18 million and $39 million during the three and six months ended June 28, 2013, respectively. These charges were primarily due to the integration of our German bottling and distribution operations. Refer to Note 10 and Note 11.
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9 |
Related to a net charge of $11 million that primarily consisted of a loss of $144 million due to the then pending merger of four of the Company's Japanese bottling partners, partially offset by 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. Refer to Note 10 and Note 14.
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10 |
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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11 |
Related to a net charge of $26 million that primarily consisted of a charge of $23 million due to the early extinguishment of certain long-term debt.
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12 |
Related to charges of $202 million that primarily consisted of 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; and a net charge of $33 million due to our proportionate share of unusual or infrequent items recorded by certain of our equity investees. Refer to Note 1 and Note 10.
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