Coca Cola 2013 Annual Report Download - page 62

15 Includes a tax benefit of $8 million on pretax charges of $19 million related to the amortization of favorable supply contracts acquired in
connection with our acquisition of CCE’s former North America business.
16 Includes a tax benefit of $3 million on pretax net charges of $9 million related to the repurchase and/or exchange of certain long-term debt
assumed in connection with our acquisition of CCE’s former North America business as well as the early extinguishment of certain other long-term
debt. Refer to Note 10 of Notes to Consolidated Financial Statements.
17 Includes a tax benefit of $14 million on pretax charges of $41 million related to the impairment of an investment in an entity accounted for under
the equity method of accounting. Refer to Note 17 of Notes to Consolidated Financial Statements.
18 Includes a tax benefit of $2 million related to amounts required to be recorded for changes to our uncertain tax positions, including interest and
penalties, in certain domestic jurisdictions.
As of December 31, 2013, the gross amount of unrecognized tax benefits was $230 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 $166 million, exclusive of any
benefits related to interest and penalties. The remaining $64 million, which was recorded as a deferred tax asset, primarily
represents tax benefits that would be received in different tax jurisdictions in the event the Company did not prevail on all
uncertain tax positions.
A reconciliation of the changes in the gross balance of unrecognized tax benefit amounts is as follows (in millions):
Year Ended December 31, 2013 2012 2011
Beginning balance of unrecognized tax benefits $ 302 $ 320 $ 387
Increases related to prior period tax positions 169 9
Decreases related to prior period tax positions (7) (15) (19)
Increases related to current period tax positions 823 6
Decreases related to current period tax positions ——(1)
Decreases related to settlements with taxing authorities (4) (45) (5)
Reductions as a result of a lapse of the applicable statute of limitations (59) (36) (46)
Increases (decreases) from effects of foreign currency exchange rates (11) (14) (11)
Ending balance of unrecognized tax benefits $ 230 $ 302 $ 320
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company
had $105 million, $113 million and $110 million in interest and penalties related to unrecognized tax benefits accrued as of
December 31, 2013, 2012 and 2011, respectively. Of these amounts, $8 million of benefit, $33 million of expense and $2 million of
benefit were recognized through income tax expense in 2013, 2012 and 2011, 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 2014 is expected to be approximately 23 percent before considering
the effect of any unusual or special items that may affect our tax rate.
Liquidity, Capital Resources and Financial Position
We believe our ability to generate cash from operating activities is one of our fundamental financial strengths. Refer to the
heading ‘‘Cash Flows from Operating Activities’’ below. The near-term outlook for our business remains strong, and we expect
to generate substantial cash flows from operations in 2014. As a result of our expected cash flows from operations, we have
significant flexibility to meet our financial commitments. The Company does not typically raise capital through the issuance of
stock. Instead, we use debt financing to lower our overall cost of capital and increase our return on shareowners’ equity. Refer to
the heading ‘‘Cash Flows from Financing Activities’’ below. We have a history of borrowing funds domestically and continue to
have the ability to borrow funds domestically at reasonable interest rates. Our debt financing includes the use of an extensive
commercial paper program as part of our overall cash management strategy. The Company reviews its optimal mix of short-term
and long-term debt regularly and may replace certain amounts of commercial paper, short-term debt and current maturities of
long-term debt with new issuances of long-term debt in the future. In addition to the Company’s cash balances, commercial paper
program, and our ability to issue long-term debt, we also had $6,410 million in lines of credit for general corporate purposes as of
December 31, 2013. These backup lines of credit expire at various times from 2014 through 2018.
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