Note 24. Other Liabilities, Provisions and Commitments
24.1 Other current financial liabilities
| 2017 | 2016 | |||||||
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Sundry creditors |
Ps. | 593 | Ps. | 688 | ||||
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Derivative financial instruments |
3,916 | 204 | ||||||
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Total |
Ps. | 4,509 | Ps. | 892 | ||||
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24.2 Provisions and other non-current liabilities
| 2017 | 2016 | |||||||
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Provisions |
Ps. | 11,067 | Ps. | 13,628 | ||||
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Taxes payable |
355 | 337 | ||||||
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Other |
850 | 1,064 | ||||||
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Total |
Ps. | 12,272 | Ps. | 15,029 | ||||
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24.3 Other non-current financial liabilities
| 2017 | 2016 | |||||||
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Derivative financial instruments |
Ps. | 578 | Ps. | 5,476 | ||||
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Security deposits |
591 | 269 | ||||||
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Total |
Ps. | 1,169 | Ps. | 5,745 | ||||
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24.4 Provisions recorded in the consolidated statement of financial position
The Company has various loss contingencies, and has recorded reserves as other liabilities for those legal proceedings for which it believes an unfavorable resolution is probable. The following table presents the nature and amount of the loss contingencies recorded as of December 31, 2017 and 2016:
| 2017 | 2016 | |||||||
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Taxes |
Ps. | 6,717 | Ps. | 10,223 | ||||
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Labor |
2,365 | 2,356 | ||||||
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Legal |
1,985 | 1,049 | ||||||
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Total |
Ps. | 11,067 | Ps. | 13,628 | ||||
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24.5. Changes in the balance of provisions recorded
24.5.1 Taxes
| 2017 | 2016 | 2015 | ||||||||||
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Balance at beginning of the year |
Ps. | 10,223 | Ps. | 1,658 | Ps. | 2,198 | ||||||
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Penalties and other charges |
148 | 173 | 21 | |||||||||
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New contingencies |
4 | 3 | 84 | |||||||||
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Cancellation and expiration |
(98 | ) | (106 | ) | (205 | ) | ||||||
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Contingencies added in business combinations (1) |
861 | 7,840 | — | |||||||||
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Payments |
(944 | ) | (6 | ) | (214 | ) | ||||||
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Brazil tax amnesty |
(3,069 | ) | — | — | ||||||||
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Effect of foreign currency exchange rates |
(408 | ) | 661 | (226 | ) | |||||||
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Balance at end of the year |
Ps. | 6,717 | Ps. | 10,223 | Ps. | 1,658 | ||||||
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24.5.2 Labor
| 2017 | 2016 | 2015 | ||||||||||
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Balance at beginning of the year |
Ps. | 2,356 | Ps. | 1,340 | Ps. | 1,543 | ||||||
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Penalties and other charges |
56 | 203 | 209 | |||||||||
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New contingencies |
115 | 211 | 44 | |||||||||
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Cancellation and expiration |
(33 | ) | (177 | ) | (102 | ) | ||||||
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Contingencies added in business combinations |
— | 500 | — | |||||||||
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Payments |
(76 | ) | (336 | ) | (111 | ) | ||||||
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Effects of foreign currency exchange rates |
(52 | ) | 615 | (243 | ) | |||||||
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Effect Venezuela (Note 3.3) |
(1 | ) | — | — | ||||||||
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Balance at end of the year |
Ps. | 2,365 | Ps. | 2,356 | Ps. | 1,340 | ||||||
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24.5.3 Legal
| 2017 | 2016 | 2015 | ||||||||||
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Balance at beginning of the year |
Ps. | 1,049 | Ps. | 319 | Ps. | 427 | ||||||
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Penalties and other charges |
121 | 33 | — | |||||||||
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New contingencies |
170 | 196 | — | |||||||||
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Cancellation and expiration |
(16 | ) | (46 | ) | (33 | ) | ||||||
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Contingencies added in business combinations |
783 | 496 | — | |||||||||
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Payments |
(80 | ) | (81 | ) | — | |||||||
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Brazil tax amnesty |
7 | — | — | |||||||||
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Effects of foreign currency exchange rates |
(47 | ) | 132 | (75 | ) | |||||||
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Effects Venezuela |
(2 | ) | — | — | ||||||||
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Balance at end of the year |
Ps. | 1,985 | Ps. | 1,049 | Ps. | 319 | ||||||
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| (1) | At December 31, 2016, an amount of Ps. 7,840 correspond to tax claims with local Brazil IRS (including a contingency of Ps. 5,321 related to the deductibility of a tax goodwill balance). The remaining contingencies relates to multiple claims with loss expectations assessed by management and supported by the analysis of legal counsels as possible, the total amount of contingencies guaranteed agreements amounts to Ps. 8,081. During 2017, the Company took advantage of a Brazilian tax amnesty program. The settlement of certain outstanding matters under that amnesty program generated a benefit of Ps. 1,874 such benefit has been offset against the corresponding indemnifiable assets. |
While provision for all claims has already been made, the actual outcome of the disputes and the timing of the resolution cannot be estimated by the Company at this time.
24.6 Unsettled lawsuits
The Company has entered into several proceedings with its labor unions, tax authorities and other parties that primarily involve Coca-Cola FEMSA and its subsidiaries. These proceedings have resulted in the ordinary course of business and are common to the industry in which the Company operates. Such contingencies were classified by the Company as less than probable but not remote, the estimated amount as of December 31, 2017 of these lawsuits is Ps. 64,558, however, the Company believes that the ultimate resolution of such proceedings will not have a material effect on its consolidated financial position or result of operations.
The Company has tax contingencies, most of which are related to its Brazilian operations, amounting to approximately Ps. 51,014 with loss expectations assessed by management and supported by the analysis of legal counsel consider as possible. Among these possible contingencies, are Ps. 12,346 in various tax disputs related primarily to credits for ICMS (VAT) and Ps. 33,217 related to tax credits of IPI over raw materials acquired from Free Trade Zone Manaus. Possible claims also include Ps. 4,787 related to compensation of federal taxes not approved by the IRS (Tax authorities), and Ps. 664 related to the requirement by the Tax Authorities of State of São Paulo for ICMS (VAT), interest and penalty due to the alleged underpayment of tax arrears for the period 1994-1996. The Company is defending its position in these matters and final decision is pending in court.
In recent years in its Mexican and Brazilian territories, Coca-Cola FEMSA has been requested to present certain information regarding possible monopolistic practices. These requests are commonly generated in the ordinary course of business in the soft drink industry where this subsidiary operates. The Company does not expect any material liability to arise from these contingencies.
24.7 Collateralized contingencies
As is customary in Brazil, the Company has been required by the tax authorities there to collateralize tax contingencies currently in litigation amounting to Ps. 9,433, Ps. 8,093 and Ps. 3,569 as of December 31, 2017, 2016 and 2015, respectively, by pledging fixed assets and entering into available lines of credit covering the contingencies.
24.8 Commitments
As of December 31, 2017, the Company has contractual commitments for operating leases for the rental of production machinery and equipment, distribution and computer equipment.
The contractual maturities of the operating leases commitments by currency, expressed in mexican pesos as of December 31, 2017, are as follows:
| Mexican pesos | U.S. dollars | Other | ||||||||||
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Not later than 1 year |
Ps. | 106 | Ps. | 103 | Ps. | 1 | ||||||
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Later than 1 year and not later than 5 years |
423 | 682 | — | |||||||||
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Later than 5 years |
211 | 205 | — | |||||||||
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Total |
Ps. | 740 | Ps. | 990 | Ps. | 1 | ||||||
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Rental expense charged to consolidated net income was Ps. 1,420, Ps. 1,232 and Ps. 1,044 for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company has firm commitments for the purchase of property, plant and equipment of Ps. 933 as December 31, 2017.