Coca Cola 2015 Annual Report Download - page 45

In 2015, the Company's total pension expense related to defined benefit plans was $305 million. In 2016, we expect our total pension expense to be
$105 million. The anticipated decrease is primarily due to settlement and special termination costs incurred in 2015 of $169 million, the new method to
calculate service and interest costs described above, an increase in the weighted-average discount rate used to calculate the Company's benefit obligations
and the impact of $471 million of contributions the Company made in early 2016 to U.S. pension plans. The impact of these items will be partially offset by
unfavorable asset performance compared to our expected return during 2015 and a decrease in the expected return on assets for U.S. plans. The estimated
impact of a 50 basis-point decrease in the discount rate on our 2016 pension expense would be an increase to our pension expense of $34 million.
Additionally, the estimated impact of a 50 basis-point decrease in the expected long-term rate of return on plan assets on our 2016 pension expense would be
an increase to our pension expense of $29 million.
The sensitivity information provided above is based only on changes to the actuarial assumptions used for our U.S. pension plans. As of December 31, 2015,
the Company's primary U.S. plan represented 59 percent and 62 percent of the Company's consolidated projected pension benefit obligation and pension
assets, respectively. Refer to Note 13 of Notes to Consolidated Financial Statements for additional information about our pension plans and related actuarial
assumptions.
Effective December 31, 2014, the Company revised our mortality assumptions used to determine the projected benefit obligation of the U.S. defined benefit
pension plans. The revised assumptions were derived from the mortality tables and the mortality improvement scales published by the Society of Actuaries in
October 2014. The change in mortality assumptions for the U.S. plans resulted in an increase in the projected benefit obligation at December 31, 2014 of
$210 million.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price is fixed or determinable and
collectibility is reasonably assured. For our Company, this generally means that we recognize revenue when title to our products is transferred to our bottling
partners, resellers or other customers. Title usually transfers upon shipment to or receipt at our customers' locations, as determined by the specific sales terms
of each transaction. Our sales terms do not allow for a right of return except for matters related to any manufacturing defects on our part.
Our customers can earn certain incentives which are included in deductions from revenue, a component of net operating revenues in our consolidated
statements of income. These incentives include, but are not limited to, cash discounts, funds for promotional and marketing activities, volume-based
incentive programs and support for infrastructure programs. Refer to Note 1 of Notes to Consolidated Financial Statements. The aggregate deductions from
revenue recorded by the Company in relation to these programs, including amortization expense on infrastructure programs, were $6.8 billion, $7.0 billion
and $6.9 billion in 2015, 2014 and 2013, respectively. In preparing the financial statements, management must make estimates related to the contractual
terms, customer performance and sales volume to determine the total amounts recorded as deductions from revenue. Management also considers past results
in making such estimates. The actual amounts ultimately paid may be different from our estimates. Such differences are recorded once they have been
determined and have historically not been significant.
Income Taxes
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.
Significant judgment is required in determining our annual tax expense and in evaluating our tax positions. We establish reserves to remove some or all of
the tax benefit of any of our tax positions at the time we determine that the positions become uncertain based upon one of the following: (1) the tax position
is not "more likely than not" to be sustained, (2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is
"more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or
not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant
information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and
case law and their applicability to the facts and circumstances of the tax position, and (3) each tax position is evaluated without considerations of the
possibility of offset or aggregation with other tax positions taken. We adjust these reserves, including any impact on the related interest and penalties, in
light of changing facts and circumstances, such as the progress of a tax audit. Refer to the heading "Operations Review — Income Taxes" below and Note 14
of Notes to Consolidated Financial Statements.
On September 17, 2015, the Company received a Notice from the IRS for the tax years 2007 through 2009, after a five-year audit. In the Notice, the IRS
claims that the Company's United States taxable income should be increased by an amount that creates a potential additional federal income tax liability of
approximately $3.3 billion for the period, plus interest. No penalties were asserted in the Notice; however, the IRS has since taken the position that it is not
precluded from asserting penalties and notified the Company that it may do so. The disputed amounts largely relate to a transfer pricing matter involving the
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