Coca Cola 2006 Annual Report Download - page 117

THE COCA-COLA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: INCOME TAXES (Continued)
9Includes approximately $92 million (or 1.4 percent) tax benefit related to the favorable resolution of
certain tax matters in various international jurisdictions.
10 Includes a tax charge of approximately $75 million (or 1.2 percent) related to the recording of a
valuation allowance on various deferred tax assets recorded in Germany.
11 Includes an approximate $50 million (or 0.8 percent) tax benefit related to the realization of certain
foreign tax credits per provisions of the Jobs Creation Act.
12 Includes a tax benefit of approximately $171 million primarily related to impairment of franchise
rights at CCEAG and certain manufacturing investments. Refer to Note 18.
13 Includes an approximate $36 million (or 0.6 percent) tax benefit related to the favorable resolution of
various domestic tax matters.
Our effective tax rate reflects the tax benefits from having significant operations outside the United States
that are taxed at rates lower than the statutory U.S. rate of 35 percent. During 2006, the Company had several
subsidiaries that benefited from various tax incentive grants. The terms of these grants range from 2010 to 2018.
The Company expects each of the grants to be renewed indefinitely. The grants did not have a material effect on
the results of operations for the years ended December 31, 2006, 2005 or 2004.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $7.7 billion at
December 31, 2006. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S.
federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of
dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for
foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount
of unrecognized deferred U.S. income tax liability is not practical because of the complexities associated with its
hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce a portion of the
U.S. tax liability.
As discussed in Note 1, the Jobs Creation Act was enacted in October 2004. One of the provisions provides
a one-time benefit related to foreign tax credits generated by equity investments in prior years. The Company
recorded an income tax benefit of approximately $50 million as a result of this law change in 2004. The Jobs
Creation Act also included a temporary incentive for U.S. multinationals to repatriate foreign earnings at an
approximate 5.25 percent effective tax rate. During the first quarter of 2005, the Company decided to repatriate
approximately $2.5 billion in previously unremitted foreign earnings. Therefore, the Company recorded a
provision for taxes on such previously unremitted foreign earnings of approximately $152 million in the first
quarter of 2005. During 2005, the United States Internal Revenue Service and the United States Department of
Treasury issued additional guidance related to the Jobs Creation Act. As a result of this guidance, the Company
reduced the accrued taxes previously provided on such unremitted earnings by $25 million in the second quarter
of 2005. During the fourth quarter of 2005, the Company repatriated an additional $3.6 billion, with an
associated tax liability of approximately $188 million. Therefore, the total previously unremitted earnings that
were repatriated during the full year of 2005 was $6.1 billion with an associated tax liability of approximately
$315 million. This liability was recorded in 2005 as federal and state and local tax expenses in the amount of
$301 million and $14 million, respectively.
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