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34
Gross Profit. Gross profit increased $3 million for the year ended December 31, 2013 compared with the year ended December
31, 2012. Gross margin was 58.3% for both years ended December 31, 2013 and 2012. Significant activity within the gross margin
included the $58 million favorable comparison in our LIFO inventory provision, driven by the higher prices of apples in the prior
year, and increases in our net price realization. These favorable changes were offset by increases in our commodity costs, led by
apples and sweeteners, the $30 million unfavorable comparison for the mark-to-market activity on commodity derivative contracts
and unfavorable mix due to a higher mix of finished goods rather than concentrates, as well as package and product mix. The
change in our LIFO inventory provision for the year ended December 31, 2013 was a $39 million reduction in the provision versus
a $19 million increase in the provision for the year ended December 31, 2012. The mark-to-market activity on commodity derivative
contracts for the year ended December 31, 2013 was $15 million in unrealized losses versus $15 million in unrealized gains in
the year ago period.
Selling, General and Administrative Expenses. SG&A expenses increased $4 million for the year ended December 31, 2013
compared with the prior period. The increase was primarily the result of $7 million in workforce reduction costs, incremental
operating costs associated with the acquisition of certain assets of DP/7UP West, increased marketing investments and the
unfavorable comparison for the mark-to-market activity on commodity derivative contracts. These increases were partially offset
by lower labor and benefit costs, a $6 million favorable adjustment in 2013 to the legal provision associated with the ABC litigation
and lower logistics costs.
Multi-employer Pension Plan Withdrawal. We recognized a non-cash charge of $56 million related to our intention to withdraw
from Local 710. Refer to Note 14 of the Notes to our Audited Consolidated Financial Statements for further information on this
charge.
Income from Operations. Income from operations decreased $46 million to $1,046 million for the year ended December 31,
2013, principally due to the non-cash charge for the multi-employer pension plan withdrawal and an increase in SG&A expenses
partially offset by the decline in depreciation and amortization driven by the favorable comparison to the $8 million depreciation
adjustment recorded in the prior year.
Other Expense (Income), Net and (Benefit) Provision for Income Taxes. We have historically recorded indemnification income
from under the Tax Indemnity Agreement as other expense (income), net in the Consolidated Statements of Income.
Due to the completion of the IRS audit for our 2006-2008 federal income tax returns in August 2013, we recognized an income
tax benefit of $463 million primarily related to decreasing our liability for unrecognized tax benefits and $430 million of other
expense, net, as we no longer anticipate collecting amounts from Additionally, in June 2013, a bill was enacted by the
Canadian government, which reduced amounts amortized for income tax purposes. As a result, we recognized $38 million of
indemnity income due to the reduction of our long-term liability to and $50 million of income tax expense for the
reduction of our tax assets.
The following table excludes these amounts discussed above from our other expense (income), net, (loss) income before
(benefit) provision for income taxes and equity in earnings of unconsolidated subsidiaries and (benefit) provision for income taxes
lines within our Consolidated Statements of Income. We have presented this table as we believe the effect of those items on these
lines and on our effective tax rate for the year ended December 31, 2013 are not meaningful as reported.
For the Year Ended December 31, 2013
(in millions) As reported
Completion
of the IRS
audit in
August 2013
Enactment of
the Canadian
bill in June
2013
As reported
excluding
tax and
indemnity
items
For the Year
Ended
December
31, 2012
Other expense (income), net $ 383 $ (430) $ 38 $ (9) $(9)
Income before (benefit) provision for
income taxes and equity in earnings
of unconsolidated subsidiaries 542 430 (38)934 978
(Benefit) provision for income taxes (81) 463 (50)332 349
Effective tax rate (14.9)% 35.5% 35.7%