Coca Cola 2007 Annual Report Download - page 43

Tax law requires items to be included in the tax return at different times than when these items are reflected in the
consolidated financial statements. As a result, the annual tax rate reflected in our consolidated financial statements is
different than that reported in our tax return (our cash tax rate). Some of these differences are permanent, such as
expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation
expense. These timing differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are
determined based on temporary differences between the financial reporting and tax bases of assets and liabilities. The
tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year in which the
differences are expected to reverse. Based on the evaluation of all available information, the Company recognizes
future tax benefits, such as net operating loss carryforwards, to the extent that realizing these benefits is considered
more likely than not.
We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted
taxable income using both historical and projected future operating results, the reversal of existing temporary
differences, taxable income in prior carryback years (if permitted) and the availability of tax planning strategies. A
valuation allowance is required to be established unless management determines that it is more likely than not that the
Company will ultimately realize the tax benefit associated with a deferred tax asset.
Additionally, undistributed earnings of a subsidiary are accounted for as a temporary difference, except that
deferred tax liabilities are not recorded for undistributed earnings of a foreign subsidiary that are deemed to be
indefinitely reinvested in the foreign jurisdiction. The Company has formulated a specific plan for reinvestment of
undistributed earnings of its foreign subsidiaries which demonstrates that such earnings will be indefinitely reinvested
in the applicable tax jurisdictions. Should we change our plans, we would be required to record a significant amount of
deferred tax liabilities.
The American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was enacted in October 2004. Among other
things, it provided a one-time benefit related to foreign tax credits generated by equity investments in prior years. In
2004, the Company recorded an income tax benefit of approximately $50 million as a result of this new law. 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 2005, the Company repatriated approximately $6.1 billion in
previously unremitted foreign earnings, with an associated tax liability of approximately $315 million. The
reinvestment requirements of this repatriation have been fulfilled at December 31, 2007. Refer to Note 1 and Note 17
of Notes to Consolidated Financial Statements.
The Company’s effective tax rate is expected to be approximately 22.0 to 22.5 percent in 2008. This estimated tax
rate does not reflect the impact of any unusual or special items that may affect our tax rate in 2008.
Contingencies
Our Company is subject to various claims and contingencies, mostly related to legal proceedings and tax matters
(both income taxes and indirect taxes). Due to their nature, such legal proceedings and tax matters involve inherent
uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental
actions. Management assesses the probability of loss for such contingencies and accrues a liability and/or discloses the
relevant circumstances, as appropriate. Management believes that any liability to the Company that may arise as a
result of currently pending legal proceedings, tax matters or other contingencies will not have a material adverse effect
on the financial condition of the Company taken as a whole. Refer to Note 13 of Notes to Consolidated Financial
Statements.
Recent Accounting Standards and Pronouncements
Refer to Note 1 of Notes to Consolidated Financial Statements for a discussion of recent accounting standards and
pronouncements.
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