| 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 $538 million (20.2 percent effective tax rate) and $925 million (27.4 percent effective tax rate) during the three months ended September 26, 2014 and September 27, 2013, respectively. The Company recorded income tax expense of $1,896 million (23.0 percent effective tax rate) and $2,331 million (25.2 percent effective tax rate) during the nine months ended September 26, 2014 and September 27, 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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Nine Months Ended |
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September 26,
2014 |
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September 27,
2013 |
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September 26,
2014 |
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September 27,
2013 |
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Asset impairments |
$ |
— |
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$ |
— |
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8 |
$ |
— |
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$ |
— |
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8 |
Productivity and reinvestment program |
(30 |
) |
1 |
(37 |
) |
9 |
(96 |
) |
1 |
(115 |
) |
9 |
Other productivity, integration and restructuring initiatives |
— |
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2 |
1 |
|
10 |
— |
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2 |
2 |
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10 |
Transaction gains and losses |
(96 |
) |
3 |
255 |
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11 |
(147 |
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4 |
303 |
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12 |
Certain tax matters |
(29 |
) |
5 |
(20 |
) |
13 |
2 |
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5 |
(20 |
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13 |
Other — net |
(2 |
) |
6 |
4 |
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14 |
6 |
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7 |
— |
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15 |
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1 |
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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2 |
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 and distribution operations. Refer to Note 10 and Note 11.
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3 |
Related to charges of $277 million including $270 million due to refranchising certain North America territories. Refer to Note 2.
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4
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Related to charges of $417 million including $410 million due to refranchising certain North America territories. Refer to Note 2.
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5 |
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 are individually insignificant. |
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6 |
Related to charges of $14 million that 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 10.
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7 |
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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8 |
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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9 |
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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10 |
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 integration of our German bottling and distribution operations. Refer to Note 10 and Note 11.
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11 |
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 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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12 |
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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13 |
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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14 |
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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15 |
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 investees; and a charge of $11 million associated with certain of the Company's fixed assets. Refer to Note 10.
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