Snapple 2008 Annual Report Download - page 103

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of goodwill and intangible assets resulted in a reduction of $343 million to the Company’s net deferred tax liability.
Furthermore, in association with the Company’s separation from Cadbury, the carrying amounts of certain of its
Canadian assets were stepped up in accordance with current Canadian law for tax purposes. A deferred tax asset of
$173 million was established reflecting enacted Canadian tax legislation. The balance of this deferred tax asset was
$122 million as of December 31, 2008, due to amortization of the intangible asset and changes in the foreign
exchange rate. DPS’ cash tax benefit received from the amortization of the stepped up assets will be remitted to
Cadbury or one of its subsidiaries under the Tax Indemnity Agreement. On this basis, a $130 million payable by
DPS to Cadbury was established under long term liabilities to reflect the potential liability. The balance of this
payable was $109 million as of December 31, 2008, due to changes in the foreign exchange rate. However,
anticipated legislation in Canada could result in a future write down of the deferred tax asset which would be partly
offset by a write down of the liability due to Cadbury.
As of December 31, 2008, the Company had $10 million in tax effected state and local net operating loss and
state credit carryforwards. The state and local non operating loss carryforwards expire from 2009 through 2028. The
state tax credit carryforward expires in 2027.
As of December 31, 2008, undistributed earnings considered to be permanently reinvested in non-U.S. sub-
sidiaries totaled approximately $124 million. Deferred income taxes have not been provided on this income as the
Company believes these earnings to be permanently reinvested. It is not practicable to estimate the amount of
additional tax that might be payable on these undistributed foreign earnings.
The Company had a deferred tax valuation allowance of $21 million and $0 as of December 31, 2008 and 2007,
respectively. The valuation allowance is primarily related to a foreign operation and was established as part of the
separation transaction.
The Company files income tax returns in various U.S. federal, state and local jurisdictions. The Company also
files income tax returns in various foreign jurisdictions, principally Canada and Mexico. The U.S. and most state
and local income tax returns for years prior to 2003 are considered closed to examination by applicable tax
authorities. Federal income tax returns for 2003, 2004 and 2005 are currently under examination by the Internal
Revenue Service. Canadian income tax returns are open for audit for the 2008 tax year, while the Mexican income
tax returns are open for tax years 2002 and forward.
In accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Inter-
pretation of FASB Statement 109 (“FIN 48”), $515 million of unrecognized tax benefits were included in other non-
current liabilities and $2 million of unrecognized tax benefits were included in current liabilities as of December 31,
2008. DPS holds $357 million (gross unrecognized benefit of $385 million, less state income tax and interest
expense offsets of $28 million) of unrecognized tax benefits established in connection with its separation from
Cadbury. Under the Tax Indemnity Agreement, Cadbury agreed to indemnify DPS for this and other tax liabilities
and, accordingly, the Company has recorded a long-term receivable due from Cadbury as a component of other non-
current assets. These taxes and the associated indemnity may change over time as estimates of the amounts change.
Changes in estimates will be reflected when facts change and those changes in estimate will be reflected in the
Company’s statement of operations at the time of the estimate change. In addition, pursuant to the terms of the Tax
Indemnity Agreement, if DPS breaches certain covenants or other obligations or DPS is involved in certain
change-in-control transactions, Cadbury may not be required to indemnify the Company for any of these
unrecognized tax benefits that are subsequently realized.
79
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)