Coca Cola 2007 Annual Report Download - page 42

Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the
sales price is fixed or determinable, and collectibility is reasonably assured. For our Company, this generally means
that we recognize revenue when title to our products is transferred to our bottling partners, resellers or other customers.
In particular, title usually transfers upon shipment to or receipt at our customers’ locations, as determined by the
specific sales terms of each transaction. Our sales terms do not allow for a right of return except for matters related to
any manufacturing defects on our part.
In addition, our customers can earn certain incentives, which are included in deductions from revenue, a
component of net operating revenues in the consolidated statements of income. These incentives include, but are not
limited to, cash discounts, funds for promotional and marketing activities, volume-based incentive programs and
support for infrastructure programs. Refer to Note 1 of Notes to Consolidated Financial Statements. The aggregate
deductions from revenue recorded by the Company in relation to these programs, including amortization expense on
infrastructure programs, was approximately $4.1 billion, $3.8 billion and $3.7 billion for the years ended December 31,
2007, 2006 and 2005, respectively.
Income Taxes
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(“Interpretation No. 48”). Interpretation No. 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” Interpretation
No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Interpretation No. 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. Our Company adopted the provisions of Interpretation No. 48 effective January 1, 2007. As a result of the
adoption of Interpretation No. 48, we recorded an approximate $65 million increase in accrued income taxes in our
consolidated balance sheet for unrecognized tax benefits, which was accounted for as a cumulative effect adjustment to
the January 1, 2007 balance of reinvested earnings.
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the
various jurisdictions in which we operate. Significant judgment is required in determining our annual tax expense and
in evaluating our tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax
positions at the time we determine that the positions become uncertain based upon one of the following: (1) the tax
position is not “more likely than not” to be sustained, (2) the tax position is “more likely than not” to be sustained, but
for a lesser amount, (3) the tax position is “more likely than not” to be sustained, but not in the financial period in
which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain,
(1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all
relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and
statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the
tax position, and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation
with other tax positions taken. We adjust these reserves, including any impact on the related interest and penalties, in
light of changing facts and circumstances, such as the progress of a tax audit.
A number of years may elapse before a particular matter for which we have established a reserve is audited and
finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. The tax benefit that
has been previously reserved because of a failure to meet the “more likely than not” recognition threshold would be
recognized in our income tax expense in the first interim period when the uncertainty disappears under any one of the
following conditions: (1) the tax position is “more likely than not” to be sustained, (2) the tax position, amount, and/or
timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has
expired. Settlement of any particular issue would usually require the use of cash.
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