Coca Cola 2007 Annual Report Download - page 57

• a tax charge related to the gains on the sale of a portion of our equity interest in Coca-Cola Amatil and
Vonpar, at a combined effective tax rate of 58 percent, or approximately $83 million;
• a tax benefit related to restructuring charges and asset write-downs recorded by the Company, at an effective
tax rate of 18 percent, or approximately $49 million; and
• the impact of an approximate 14 percent combined effective tax rate on our proportionate share of
restructuring charges and tax rate changes recorded by CCE and the impairment of assets recorded by CCBPI
and Coca-Cola Amatil. Refer to Note 19 of Notes to Consolidated Financial Statements.
Our effective tax rate of approximately 22.8 percent for the year ended December 31, 2006, included the
following:
• a tax benefit of approximately 1.8 percent primarily related to the sale of a portion of our investments in
Coca-Cola Icecek and Coca-Cola FEMSA. The tax benefit was a result of the reversal of a valuation
allowance that covered certain deferred tax assets recorded on capital loss carryforwards. The reversal of the
valuation allowance was offset by a reduction of deferred tax assets due to the utilization of these capital loss
carryforwards. These capital loss carryforwards offset the taxable gain on the sale of a portion of our
investments in Coca-Cola Icecek and Coca-Cola FEMSA. Also included in this tax benefit is the reversal of
the deferred tax liability recorded for the differences between the financial reporting and tax bases in the
stock sold;
• an income tax benefit primarily related to the impairment of assets and investments in our bottling operations,
contract termination costs related to production capacity efficiencies and other restructuring charges at a rate
of approximately 16 percent;
• a tax charge of approximately $24 million related to the resolution of certain tax matters; and
• an income tax benefit related to our proportionate share of CCE’s charges recorded at a rate of approximately
8.8 percent. Refer to Note 3 and Note 19 of Notes to Consolidated Financial Statements.
Our effective tax rate of approximately 27.2 percent for the year ended December 31, 2005, included the
following:
• an income tax benefit primarily related to the Philippines impairment charges at a rate of approximately
4 percent;
• an income tax benefit of approximately $101 million related to the reversal of previously accrued taxes
resulting from the favorable resolution of various tax matters; and
• a tax provision of approximately $315 million related to repatriation of previously unremitted foreign
earnings under the Jobs Creation Act.
The Company adopted the provisions of Interpretation No. 48 effective January 1, 2007. As a result of the
implementation of Interpretation No. 48, the Company recorded an increase of approximately $65 million in liabilities
for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of reinvested
earnings. As of December 31, 2007, the gross amount of unrecognized tax benefits was approximately $643 million. If
the Company were to prevail on all uncertain tax positions, the net effect would be a benefit to the Company’s effective
tax rate of approximately $147 million. The remaining approximately $496 million, which was recorded as a deferred
tax asset, primarily represents tax benefits that would be received in different tax jurisdictions in the event that the
Company did not prevail on all uncertain tax positions. The Company recognizes accrued interest and penalties related
to unrecognized tax benefits in income tax expense. The Company had approximately $272 million in interest and
penalties related to unrecognized tax benefits accrued as of December 31, 2007. If the Company were to prevail on all
uncertain tax positions, the reversal of this accrual would also be a benefit to the Company’s effective tax rate.
Based on current tax laws, the Company’s effective tax rate in 2008 is expected to be approximately 22.0 to 22.5
percent before considering the effect of any unusual or special items that may affect our tax rate in future years.
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