Snapple 2010 Annual Report Download - page 70

Income Taxes
Income taxes are accounted for using the asset and liability approach under U.S. GAAP. This method involves determining
the temporary differences between assets and liabilities recognized for financial reporting and the corresponding amounts
recognized for tax purposes and computing the tax-related carryforwards at the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The resulting amounts are deferred
tax assets or liabilities and the net changes represent the deferred tax expense or benefit for the year. The total of taxes currently
payable per the tax return and the deferred tax expense or benefit represents the income tax expense or benefit for the year for
financial reporting purposes.
We periodically assess the likelihood of realizing our deferred tax assets based on the amount of deferred tax assets that we
believe is more likely than not to be realized. We base our judgment of the recoverability of our deferred tax asset primarily on
historical earnings, our estimate of current and expected future earnings, prudent and feasible tax planning strategies, and
current and future ownership changes.
As of December 31, 2010 and 2009, undistributed earnings considered to be permanently reinvested in non-
U.S. subsidiaries totaled approximately $203 million and $115 million, respectively. 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.
Our effective income tax rate may fluctuate on a quarterly basis due to various factors, including, but not limited to, total
earnings and the mix of earnings by jurisdiction, the timing of changes in tax laws, and the amount of tax provided for
uncertain tax positions.
We establish income tax reserves to remove some or all of the income tax benefit of any of our income tax positions at the
time we determine that the positions become uncertain based upon one of the following: (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.
Our evaluation of whether or not a tax position is uncertain is based on the following: (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
considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these income tax reserves
when our judgment changes as a result of new information. Any change will impact income tax expense in the period in which
such determination is made.
Effect of Recent Accounting Pronouncements
Refer to Note 2 of the Notes to our Audited Consolidated Financial Statements in Item 8, “Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K for a discussion of recent accounting standards and
pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including inflation, movements in foreign
currency exchange rates, interest rates, and commodity prices. The Company does not enter into derivatives or other financial
instruments for trading purposes.
Foreign Exchange Risk
The majority of our net sales, expenses, and capital purchases are transacted in United States dollars. However, we do have
some exposure with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the
Canadian dollar and Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions
are recognized as transaction gains or losses in our income statement as incurred. We use derivative instruments such as foreign
exchange forward contracts to manage our exposure to changes in foreign exchange rates. As of December 31, 2010, the impact
to net income of a 10% change in exchange rates is estimated to be approximately $16 million.
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