Coca Cola 2010 Annual Report Download - page 74

• a tax charge of approximately $15 million related to the recognition of a valuation allowance on deferred tax
assets (refer to Note 14 of Notes to Consolidated Financial Statements); and
• a net tax benefit of approximately $13 million related to amounts required to be recorded for changes to our
uncertain tax positions, including interest and penalties (refer to Note 14 of Notes to Consolidated Financial
Statements).
Our effective tax rate of approximately 21.7 percent for the year ended December 31, 2008, included the following:
• an approximate 20 percent combined effective tax rate on restructuring charges, other-than-temporary
impairments of available-for-sale securities, contract termination fees, productivity initiatives and asset
impairments recorded by the Company (refer to Note 17 of Notes to Consolidated Financial Statements);
• an approximate 23 percent combined effective tax rate on our proportionate share of asset impairment and
restructuring charges recorded by equity method investees, primarily related to impairment charges recorded by
CCE (refer to Note 17 of Notes to Consolidated Financial Statements);
• an approximate 24 percent combined effective tax rate on gains from divestitures (refer to Note 17 of Notes to
Consolidated Financial Statements);
• a tax charge of approximately $10 million related to the recognition of a valuation allowance on deferred tax
assets (refer to Note 14 of Notes to Consolidated Financial Statements); and
• a net tax benefit of approximately $5 million, primarily related to amounts required to be recorded for changes
to our uncertain tax positions, including interest and penalties (refer to Note 14 of Notes to Consolidated
Financial Statements).
As of December 31, 2010, the gross amount of unrecognized tax benefits was approximately $387 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 $163 million, exclusive of any benefits related to interest and penalties. The remaining
approximately $224 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. Refer
to Note 14 of Notes to Consolidated Financial Statements. A reconciliation of the changes in the gross balance of
unrecognized tax benefit amounts is as follows (in millions):
Year Ended December 31, 2010 2009 2008
Beginning balance of unrecognized tax benefits $ 354 $ 369 $ 643
Increases related to prior period tax positions 26 49 52
Decreases related to prior period tax positions (10) (28) (4)
Increases due to current period tax positions 33 16 47
Decreases related to settlements with taxing authorities —(27) (254)
Reductions as a result of a lapse of the applicable statute of limitations (1) (73) (36)
Increase due to acquisition of CCE’s North American business 6——
Increases (decreases) from effects of exchange rates (21) 48 (79)
Ending balance of unrecognized tax benefits $ 387 $ 354 $ 369
In 2008, agreements were reached between the U.S. government and a foreign government concerning the allocation of
income between the two tax jurisdictions. Pursuant to these agreements, we made cash payments during the third
quarter of 2008 that constituted payments of tax and interest. These payments were partially offset by tax credits taken
in the third quarter and fourth quarter of 2008, and tax refunds and interest on refunds received in 2009. These
benefits had been recorded as deferred tax assets in prior periods. The settlements did not have a material impact on
the Company’s consolidated income statement for the year ended December 31, 2008.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The
Company had approximately $112 million, $94 million and $110 million in interest and penalties related to
unrecognized tax benefits accrued as of December 31, 2010, 2009 and 2008, respectively. Of these amounts,
approximately $17 million, $16 million and $14 million of benefits were recognized through tax expense in 2010, 2009
and 2008, respectively. 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 2011 is expected to be approximately 23.5 percent to
24.5 percent before considering the effect of any unusual or special items that may affect our tax rate in future years.
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