Coca Cola 2014 Annual Report Download - page 44

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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.
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 from 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. As of December 31, 2014, the Company’s valuation allowances on deferred tax assets were $649 million
and primarily related to uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards generated in
various jurisdictions. Current evidence does not suggest we will realize sufficient taxable income of the appropriate character within
the carryforward period to allow us to realize these deferred tax benefits. If we were to identify and implement tax planning strategies
to recover these deferred tax assets or generate sufficient income of the appropriate character in these jurisdictions in the future, it
could lead to the reversal of these valuation allowances and a reduction of income tax expense. The Company believes it will generate
sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance
sheets.
The Company does not record a U.S. deferred tax liability for the excess of the book basis over the tax basis of its investments in
foreign corporations to the extent that the basis difference results from earnings that meet the indefinite reversal criteria. These
criteria are met if the foreign subsidiary has invested, or will invest, the undistributed earnings indefinitely. The decision as to the
amount of undistributed earnings that the Company intends to maintain in non-U.S. subsidiaries takes into account items including,
but not limited to, forecasts and budgets of financial needs of cash for working capital, liquidity plans, capital improvement programs,
merger and acquisition plans, and planned loans to other non-U.S. subsidiaries. The Company also evaluates its expected cash
requirements in the United States. Other factors that can influence that determination are local restrictions on remittances (for
example, in some countries a central bank application and approval are required in order for the Company’s local country subsidiary
to pay a dividend), economic stability and asset risk. As of December 31, 2014, undistributed earnings of the Company’s foreign
subsidiaries that met the indefinite reversal criteria amounted to $33.3 billion. Refer to Note 14 of Notes to Consolidated Financial
Statements.
The Company’s effective tax rate is expected to be approximately 22.5 percent in 2015. This estimated tax rate does not reflect the
impact of any unusual or special items that may affect our tax rate in 2015.
Operations Review
Our organizational structure as of December 31, 2014, consisted of the following operating segments, the first six of which are
sometimes referred to as “operating groups” or “groups”: Eurasia and Africa; Europe; Latin America; North America; Asia Pacific;
Bottling Investments; and Corporate. For further information regarding our operating segments, refer to Note 19 of Notes to
Consolidated Financial Statements.
Structural Changes, Acquired Brands and Newly Licensed Brands
In order to continually improve upon the Company’s operating performance, from time to time, we engage in buying and selling
ownership interests in bottling partners and other manufacturing operations. In addition, we also acquire brands or enter into license
agreements for certain brands to supplement our beverage offerings. These items impact our operating results and certain key metrics
used by management in assessing the Company’s performance.