Coca Cola 2013 Annual Report Download - page 88

amount that will more likely than not be realized. The Company records taxes that are collected from customers and remitted to
governmental authorities on a net basis in our consolidated statements of income.
The Company is involved in various tax matters, with respect to some of which the outcome is uncertain. We establish reserves to
remove some or all of the tax benefit of any of our tax positions at the time we determine that it becomes uncertain based upon
one of the following conditions: (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 consideration of the possibility of offset or aggregation with other tax positions taken. A number of
years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The
number of years subject to tax assessments 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. Refer to Note 14.
Translation and Remeasurement
We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies to U.S. dollars at the
appropriate spot rates as of the balance sheet date. Generally, our foreign subsidiaries use the local currency as their functional
currency. Changes in the carrying value of these assets and liabilities attributable to fluctuations in spot rates are recognized in
foreign currency translation adjustment, a component of AOCI. Refer to Note 15. Income statement accounts are translated using
the monthly average exchange rates during the year.
Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first
be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is
recognized in the line item other income (loss) — net in our consolidated statements of income and is partially offset by the
impact of our economic hedging program for certain exposures on our consolidated balance sheets. Refer to Note 5.
Hyperinflationary Economies
A hyperinflationary economy is one that has cumulative inflation of 100 percent or more over a three-year period. Effective
January 1, 2010, Venezuela was determined to be a hyperinflationary economy. In accordance with hyperinflationary accounting
under accounting principles generally accepted in the United States, our local subsidiary was required to use the U.S. dollar as its
functional currency.
During February 2013, the Venezuelan government devalued its currency to the official rate of exchange (‘‘official rate’’) of
6.3 bolivars per U.S. dollar. The Company remeasured the net assets of our local subsidiary and recognized the related loss of
$140 million from remeasurement in the line item other income (loss) — net in our consolidated statement of income.
The Company will continue to use the official rate to remeasure the net assets of our Venezuelan subsidiary. In December 2013,
the Venezuelan government devalued the currency for foreign tourists to 11.3 bolivars per U.S. dollar, which may indicate that
another official currency devaluation could occur. If the official rate devalues further, or if we are able to access currency at
different rates that are reasonable to the Company, it would result in our Company recognizing additional foreign currency
exchange gains or losses in our consolidated financial statements. As of December 31, 2013, our Venezuelan subsidiary held
monetary assets of $426 million and monetary liabilities of $45 million.
In addition to the foreign currency exchange exposure related to our Venezuelan subsidiary’s net assets, we also sell concentrate
to our bottling partner in Venezuela from outside the country. These sales are denominated in U.S. dollars. If a government-
approved exchange rate mechanism for future concentrate sales to our bottling partner in Venezuela is not available, the amount
of receivables related to these sales will continue to increase. The carrying value of these receivables was $267 million and
$109 million as of December 31, 2013 and 2012, respectively. In addition, we have certain U.S. dollar denominated intangible
assets associated with products sold in Venezuela. If the bolivar further devalues, it could result in the impairment of these
intangible assets. As of December 31, 2013, intangible assets associated with products sold in Venezuela had a carrying value of
$107 million.
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