Coca Cola 2004 Annual Report Download - page 74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Coca-Cola Company and Subsidiaries
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
During 2004, the FASB issued FASB Staff Position 106-2, ‘‘Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003’’ (‘‘FSP 106-2’’). FSP
106-2 relates to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the ‘‘Act’’)
signed into law in December 2003. The Act introduced a prescription drug benefit under Medicare known as
‘‘Medicare Part D.’’ The Act also established a federal subsidy to sponsors of retiree health care plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D. During the second quarter of 2004,
our Company adopted the provisions of FSP 106-2 retroactive to January 1, 2004. The adoption of FSP 106-2 did
not have a material impact on our consolidated financial statements. Refer to Note 14.
In October 2004, the American Jobs Creation Act of 2004 (the ‘‘Jobs Creation Act’’) was signed into law.
The Jobs Creation Act includes a temporary incentive for U.S. multinationals to repatriate foreign earnings at
an effective 5.25 percent tax rate. Such repatriations must occur in either an enterprise’s last tax year that began
before the enactment date, or the first tax year that begins during the one-year period beginning on the date
of enactment.
FASB Staff Position 109-2, ‘‘Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004’’ (‘‘FSP 109-2’’), indicates that the lack of clarification
of certain provisions within the Jobs Creation Act and the timing of the enactment necessitate a practical
exception to the SFAS No. 109, ‘‘Accounting for Income Taxes,’’ (‘‘SFAS No. 109’’) requirement to reflect in the
period of enactment the effect of a new tax law. Accordingly, an enterprise is allowed time beyond the financial
reporting period of enactment to evaluate the effect of the Jobs Creation Act on its plan for reinvestment or
repatriation of foreign earnings. FSP 109-2 requires that the provisions of SFAS No. 109 be applied as an
enterprise decides on its plan for reinvestment or repatriation of its unremitted foreign earnings.
In 2004, our Company recorded an income tax benefit of approximately $50 million as a result of the
realization of certain tax credits related to certain provisions of the Jobs Creation Act not related to repatriation
provisions. Our Company is currently evaluating the details of the Jobs Creation Act and any impact it may have
on our income tax expense in 2005. Refer to Note 15.
In November 2004, the FASB issued SFAS No. 151, ‘‘Inventory Costs, an amendment of Accounting
Research Bulletin No. 43, Chapter 4.’’ SFAS No. 151 requires that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials (spoilage) be recorded as current period charges and that the
allocation of fixed production overheads to inventory be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for our Company on January 1, 2006. The Company does not believe that the
adoption of SFAS No. 151 will have a material impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), ‘‘Share Based Payment’’ (‘‘SFAS
No. 123(R)’’). SFAS No. 123(R) supercedes APB Opinion No. 25, ‘‘Accounting for Stock Issued to Employees,’’
and amends SFAS No. 95, ‘‘Statement of Cash Flows.’’ Generally, the approach in SFAS No. 123(R) is similar to
the approach described in SFAS No. 123. SFAS No. 123(R) must be adopted by our Company by the third
quarter of 2005. Currently, our Company uses the Black-Scholes-Merton formula to estimate the value of stock
options granted to employees and is evaluating option valuation models, including the Black-Scholes-Merton
formula, to determine which model the Company will utilize upon adoption of SFAS No. 123(R). Our Company
plans to adopt SFAS No. 123(R) using the modified-prospective method. We do not anticipate that adoption of
SFAS No. 123(R) will have a material impact on our Company’s stock-based compensation expense. However,
our equity investees are also required to adopt SFAS No. 123(R) beginning no later than the third quarter of
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