Pepsi 2013 Annual Report Download - page 106

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88
future Medicare subsidy payments for prescription drugs will not be taxable and consequently we recorded
a $55 million tax benefit reflecting this change in the first quarter of 2012.
For additional unaudited information on our income tax policies, including our reserves for income taxes,
see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
Reserves
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. Our
major taxing jurisdictions and the related open tax audits are as follows:
Jurisdiction Years Open to
Audit
Years Currently
Under Audit
United States 2010-2012 2010-2011
Mexico 2008-2012 None
United Kingdom 2012 None
Canada (Domestic) 2009-2012 2009-2010
Canada (International) 2008-2012 2008-2010
Russia 2009-2012 2009-2012
While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter,
we believe that our reserves reflect the probable outcome of known tax contingencies. We adjust these
reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any
particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction
to our annual tax rate in the year of resolution. For further unaudited information on the impact of the resolution
of open tax issues, see “Other Consolidated Results” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
In the fourth quarter of 2013, we reached an agreement with the IRS resolving all open matters related to
the audits for taxable years 2003 through 2009. As a result, we made U.S. Federal net cash tax payments of
$758 million, including interest. The settlement reduced our 2013 net cash provided by operating activities
and our reserves for uncertain tax positions for the tax years 2003 through 2012 and resulted in a non-cash
tax benefit of $209 million in the fourth quarter of 2013. In addition, payments for other U.S. Federal, state
and local tax matters related to open tax years totaling $226 million were made in 2013. In 2012, we received
a favorable tax court decision related to the classification of financial instruments resulting in a non-cash tax
benefit of $217 million in the fourth quarter of 2012. See additional unaudited information in “Items Affecting
Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As of December 28, 2013, the total gross amount of reserves for income taxes, reported in income taxes
payable and other liabilities, was $1,268 million. We accrue interest related to reserves for income taxes in
our provision for income taxes and any associated penalties are recorded in selling, general and administrative
expenses. The gross amount of interest accrued, reported in other liabilities, was $164 million as of
December 28, 2013, of which $36 million of expense was recognized in 2013. The gross amount of interest
accrued, reported in other liabilities, was $670 million as of December 29, 2012, of which $10 million of
benefit was recognized in 2012.