Coca Cola 2008 Annual Report Download - page 47

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.
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 and manner 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
taxable 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 Company’s effective tax rate is expected to be approximately 23.0 percent to 24.0 percent in 2009. This
estimated tax rate does not reflect the impact of any unusual or special items that may affect our tax rate in 2009.
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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